Anticipatory Feelings and Trading Performance: A Bayesian and Frequentist

Neuroscientific and Physiological Analysis Using Galvanic Skin Response

Authors:
Nicolas Hamelin
Affiliation: ADA University – Baku, Azerbaijan
Orcid:0000-0001-5984-5938
Archana Jois
Affiliation: SPJ Global School of Management – Singapore
Marco I. Bonelli
Affiliation: Ca’Foscari, University of Venice, Venice, Italy
Orchid:0000-0003-3463-6421
Corresponding Author:
Marco I. Bonelli
Email: mibonelli6@[Link]

Abstract
This study investigated the relationship between anticipatory feelings (AF), physiological
responses, and trading performance using Bayesian and frequentist methods. Twenty-seven
traders participated in a guessing game while their galvanic skin response (GSR) was
measured. Significant differences in GSR were observed both before and after the revelation
of a randomly selected image, indicating the presence of AF and the ability to anticipate
outcomes through physiological signals. Bayesian model comparison revealed that trading
performance was best predicted by a combination of factors including experience, reliance on
news feeds, emotional responses (fear and greed), use of strategy, stress level, engagement in
holistic practices, and intuition. A linear regression analysis, using log-transformed returns as
the dependent variable, further confirmed the positive association between AF and trading
performance. This analysis also highlighted the importance of experience, greed for profit,
strategy use, stress management in high-risk trading, and engagement in holistic practices
(meditation, Tai Chi, and other exercises) as predictors of trading success. Interestingly, prayer
was negatively associated with trading performance. These findings underscore the complex
interplay of psychological, behavioural, and physiological factors influencing trading success
and suggest that interventions to cultivate intuition, emotional regulation, and mindful practices
may enhance trader performance.
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Keywords: Traders, Trading Intuition, Anticipatory feelings, Galvanic Skin Response (GSR),
Intuitive Skills, Interoceptive Skills, Bayesian Statistics.

1. Introduction
The ability to anticipate market movements and make profitable trading decisions is a complex
process influenced by a multitude of factors. Recent research has highlighted the importance
of both cognitive skills, such as the ability to process market signals and infer other traders'
intentions (Corgnet et al., 2018), and physiological states, particularly interoceptive awareness,
in achieving trading success (Kandasamy et al., 2016). Interoception, the ability to sense
internal bodily signals, has been linked to enhanced risk aversion and improved decision-
making in various contexts (Dunn et al., 2010; Sokol-Hessner, 2015; Yip et al., 2020). These
findings suggest that traders who are more attuned to their physiological signals may be better
equipped to anticipate market outcomes and make profitable trades.
This study aims to investigate the relationship between traders' profitability and their
anticipatory feelings (AF), defined as the ability to anticipate future events based on subtle
physiological cues. We posit that traders with higher AF, as measured through physiological
responses, will exhibit greater profitability. Furthermore, we explore the influence of various
factors, including reliance on news feeds, emotional responses, and engagement in holistic
practices, on both AF and trading performance.
Given the inherent complexities and individual differences in trading behavior, obtaining large
sample sizes for research in this domain can be challenging. To address this limitation and
maximize the information gained from available data, we employ Bayesian statistical methods.
Bayesian approaches offer a robust framework for analyzing data by incorporating prior
knowledge and updating beliefs in light of new evidence (Van de Schoot et al., 2021). This
approach is particularly valuable in complex scenarios with limited data, where the integration
of prior knowledge and expert opinion can significantly inform the analysis.
This research contributes to the growing body of literature exploring the intersection of
psychology, physiology, and financial decision-making. By examining the role of AF in trading
success, we aim to provide valuable insights for traders, educators, and researchers seeking to
understand and enhance performance in the dynamic world of financial markets.

2. Literature Review

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Recent research in behavioral finance has explored the role of various cognitive and
physiological factors in trader performance. One line of inquiry has focused on the Theory of
Mind (ToM), the ability to understand the mental states of others. Bruguier et al. (2010) found
that traders' forecasting skills were correlated with the activation of brain regions associated
with ToM, suggesting that the ability to infer other traders' intentions may contribute to
successful trading. However, Kandasamy et al. (2016) challenged this notion, demonstrating
that traders' interoceptive awareness—the ability to sense internal bodily signals—was a
stronger predictor of profitability than ToM in a market where all traders had equal access to
information.
This emphasis on interoception aligns with a growing body of literature highlighting its
importance in decision-making, particularly in uncertain and complex environments.
Interoceptive awareness has been linked to enhanced risk aversion, improved intuitive
decision-making, and more profitable outcomes in various tasks (Dunn et al., 2010; Sokol-
Hessner et al., 2015). Furthermore, recent research has explored the concept of anticipatory
feelings (AF), defined as the awareness of physiological and neurocognitive changes that occur
in anticipation of future events (Stefanova et al., 2020). These AF, rooted in interoceptive
signals, may provide crucial information for navigating uncertain situations and making
advantageous choices.
Related to AF is the concept of Predictive Anticipatory Activity (PAA), which refers to
statistically reliable differences in physiological measures recorded seconds before an
unpredictable emotional event versus a neutral event (Mossbridge et al., 2014; Tressoldi et al.,
2010). PAA research suggests that individuals may exhibit physiological responses in
anticipation of future events, even when those events are seemingly random. This body of work
provides further support for the notion that subconscious processes, reflected in physiological
changes, can contribute to anticipatory abilities.
Building on this framework, Hamelin and Bonelli (2022) investigated the relationship between
AF and trader profitability. Their findings suggest that traders with higher AF, as measured
through physiological responses, exhibit greater profitability. This study further explores the
relationship between AF and trading success by incorporating Bayesian statistical analysis.
Bayesian methods are particularly valuable in this context because they allow for the
integration of prior knowledge and account for uncertainty, which is crucial when dealing with
complex human behavior and the limited sample sizes often encountered in trader studies. By
employing Bayesian analysis, this study aims to provide a more nuanced and robust
understanding of the factors contributing to AF and trader performance.
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3. Methods, Participants, and Procedure
This study investigates the relationship between anticipatory feelings (AF) and trading
performance, using a GSR-based experiment to measure physiological responses associated
with anticipation. GSR, or galvanic skin response, is a well-established method for measuring
changes in skin conductance related to emotional arousal and subconscious processes
(Critchley, 2002; Payne, 2008; Zaman et al., 2020). These changes in skin conductance are
thought to reflect subtle variations in sweat production triggered by the sympathetic nervous
system, providing a window into an individual's physiological response to anticipation and
decision-making.
3.1 GSR Card Experiment
1. Setup: Twenty-seven traders participated in the experiment, each wearing a GSR
device to monitor their skin conductance. A specialized application displayed a card
game and recorded the GSR readings.
2. Card Game: In each round of the game, participants had 10 seconds to choose a card
from a set of four, with one card being randomly selected as the "correct" choice. This
process was repeated for a minimum of eight rounds per participant.
3. GSR Measurement: The GSR device continuously recorded skin conductance
throughout the game, with a focus on the 10 seconds before and after each card
selection.
4. Analysis: The key analysis compared GSR readings before the card selection (pre-
choice) when the participant guessed correctly versus incorrectly. Significant
differences in these readings would suggest the presence of AF, indicating a
physiological response in anticipation of the outcome.
3.2 Participants
The study included 27 traders (93% men) with varying levels of experience and risk-taking
tendencies. All participants were employed at RV Capital Management in Singapore and were
assumed to have equal access to market information and liquidity.
3.3 Data Analysis
Of the 104 quizzes conducted, 72 showed statistically significant differences in GSR readings
between correct and incorrect guesses (t < 0.05). These valid quizzes were used for further
analysis to explore the relationship between AF, trader characteristics, and trading
performance.

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By combining this GSR-based experiment with Bayesian statistical analysis, this study aims to
provide a more comprehensive and nuanced understanding of the factors influencing AF and
its potential role in trading success.

4. Results: Questionnaire & Descriptive Statistics

Trader Self Rating Frequency Mean SD Min Max
Risk taking Ability 27 1.777 0.640 1 3
Importance of news 27 3.666 0.784 2 5
feed
Fear of losing 27 3.814 0.833 2 5
Use of strategy 27 4.518 0.579 3 5
Trust your gut feelings 27 3.518 0.642 2 5
Trust Your Intuition 27 4 0.620 3 5
Table 1: Descriptive Statistics

Table 1 presents the self-reported characteristics of the 27 traders who participated in the study.
The data reveals that these traders tend to be relatively risk-averse (average rating of 1.7 on a
5-point scale) and express a significant fear of losing (average rating of 3.8). This aligns with
the risk-conscious culture of their employer, RV Capital, which emphasizes strong risk
discipline (Roy, 2011).
Interestingly, while the traders highly value the use of strategy (average rating of 4.5), their
reliance on news feeds (average rating of 3.6) appears to be on par with their trust in intuition
and gut feelings (average ratings of 4 and 3.5, respectively). This suggests that these traders
strike a balance between analytical and intuitive approaches in their decision-making. This
finding is consistent with previous research by Thoma et al. (2015), who observed that while
traders rely more on analytical skills compared to non-banking professionals, they also utilize
intuition to a similar degree.
This balanced approach to decision-making, combining analytical strategies with intuitive
insights, may contribute to the traders' ability to navigate the complexities of financial markets
and achieve successful outcomes.

5. Results: Identifying Predictors of Trader Success - A Bayesian Approach

Table 2 presents a comparison of different Bayesian models, each aiming to predict Highest
Return on Capital based on various combinations of predictor variables. These variables

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include trader experience, reliance on news feeds, emotional factors (greed, fear of losing,
stress), engagement in holistic practices (meditation, prayer, yoga), and intuition.

Each row in Table 2 represents a different model, differentiated by the inclusion or exclusion
of specific predictor variables. For instance, the first row represents a model that includes all
the listed variables (experience, news feed, greed, strategy, stress, meditation, prayer, yoga,
holistic practices, and AF), whereas the second row represents a model that excludes AF.

5.1 Key Concepts in Bayesian Statistics

Bayesian statistics offers a distinct approach to data analysis, diverging from traditional
frequentist methods. Unlike frequentist statistics, which focus on the frequency of observed
data, Bayesian analysis incorporates prior knowledge or beliefs about the relationships between
variables. This prior knowledge is formally represented by a "prior distribution."

As new data becomes available, the prior distribution is updated to reflect the evidence
provided by the data, resulting in a "posterior distribution" that represents the updated
knowledge.

One of the key advantages of Bayesian analysis is its ability to express results in terms of
probabilistic statements about hypotheses. This approach allows for a more nuanced
interpretation of findings, acknowledging uncertainty and degrees of belief rather than relying
solely on p-values and null hypothesis significance testing.

In the context of model comparison, the posterior probability, denoted as

P(M∣data)P(M|\text{data})P(M∣data), indicates the probability of a model given the observed
data. Higher posterior probabilities suggest greater support for a model. The Bayes Factor (BF)
quantifies the evidence for a model compared to a baseline model, often the null model. A BF
greater than 1 indicates that the data provides more support for the specified model compared
to the baseline.

The coefficient of determination (R2R^2R2) remains a relevant metric in Bayesian analysis,

representing the proportion of variance in the dependent variable explained by the model (Van
de Schoot et al., 2021).

5.2 Analyzing the Results

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This table presents the results of a Bayesian model comparison where the dependent variable
is the logarithm of the Highest Return on Capital. Log-transforming the variable improved
linearity and homoscedasticity of the relationship, leading to a better model fit and more
reliable results.

5.3 Key takeaways from the analysis:

• Top Performing Model: The model with the highest posterior probability (P(M|data)
= 0.153) and Bayes Factor (BF = 2.343) includes the following predictor variables: Risk
Taking Ability, Importance to News Feeds, Fear of losing, Greed for profit, Use of
Strategy, Meditation, Prayer, Yoga, Tai Chi, Other holistic exercises, Age, Experience,
and the square of AF (Anticipatory Feeling). This suggests that this combination of
variables offers the most comprehensive explanation for variations in traders' log
returns.
• Importance of AF: The inclusion of the squared AF term in the top model indicates
that anticipatory feelings might play a significant role in explaining log returns. The
square term suggests a potential non-linear relationship, where the impact of AF on
returns might increase or decrease at different levels of AF.
• Influence of Other Variables: While the top model includes numerous variables, it's
important to note that other models with slightly lower posterior probabilities also show
substantial explanatory power. This suggests that factors like risk-taking ability,
reliance on news feeds, emotional responses (fear, greed), use of strategy, engagement
in holistic practices, age, and experience may all contribute to trading success.
• Model Selection: The Bayes Factors provide a measure of the relative evidence for
different models. While the top model has the highest BF, other models with BF values
close to 1 or higher also deserve consideration. Model selection should involve a
balance between model fit and complexity, taking into account the interpretability and
practical significance of the included variables.
• R-squared Values: The R² values are consistently high (above 0.86) across all models,
indicating that these models explain a substantial portion of the variance in log returns.
This suggests that the included variables capture important aspects of trader
performance.

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Models P(M|data) BF10 BFM BF10 R²
Experience Newsfeed Greed Strategy Stress
Meditation Prayer Yoga Holistic AF 0.071 0.153 2.343 1 0.868
Experience Newsfeed Greed Strategy Stress
Meditation Prayer Yoga Holistic 0.005 0.048 9.166 4.103 0.867
Experience Newsfeed Greed Strategy Stress
Meditation Prayer Yoga Taichi Holistic AF 0.005 0.047 8.839 3.963 0.867
Experience Newsfeed Greed Strategy
Meditation Prayer Yoga Holistic 0.005 0.038 7.125 3.224 0.866
Experience Newsfeed Greed Strategy Stress
Meditation Prayer Yoga Taichi Holistic 0.005 0.036 6.674 3.027 0.866
Experience Newsfeed Greed Strategy 9.158×10-
4
Meditation Prayer Yoga Holistic AF 0.035 39.944 18.037 0.865
Experience Newsfeed Greed Strategy 9.158×10-
4
Meditation Prayer Yoga Taichi Holistic 0.033 36.735 16.636 0.865
Experience Newsfeed Greed Strategy 2.498×10-
4
Meditation Prayer Yoga Taichi Holistic AF 0.028 114.687 52.155 0.862
Experience Newsfeed Greed Stress 9.158×10-
4
Meditation Prayer Yoga Taichi Holistic 0.024 27.202 12.424 0.864
Experience Newsfeed Greed Stress
Meditation Prayer Yoga Taichi Holistic AF 0.005 0.021 3.966 1.825 0.864
Table 2: Bayesian Statistics: Models for Highest Return on Capital Prediction

The "Residuals versus Fitted" plot (Figure 1) demonstrates the substantial improvement in
model fit achieved by taking the logarithm of the "Highest Return on Capital" variable. This
transformation effectively addressed initial non-linearity and heteroscedasticity, resulting in a
model with a strong linear relationship, homoscedastic residuals, and random errors, as
evidenced by the nearly flat trend line and the random scatter of residuals around zero. This
improved model provides a more accurate and reliable representation of the relationship
between the predictors and trader performance.

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Figure 1: Residuals versus Fitted

6. Results: Predicting Trader Performance - Linear Regression Analysis

Several linear regression models were compared to identify the best fit for predicting trader
performance. The model using log-transformed returns ("Log_Return") as the dependent
variable generally outperformed the model using untransformed returns, based on adjusted R²,
RMSE, AIC, and BIC (see Table 2 for model comparison). Both models identified similar key
predictors, including experience, greed for profit, use of strategy, meditation, prayer (negative
association), Tai Chi, other holistic exercises, stress management in high-risk trading, and
intuition score.
The analysis revealed that the model including predictors significantly outperformed the
intercept-only model, explaining 60.3% of the variance in log returns (Adjusted R² = 0.551).
The root mean squared error (RMSE) was also lower for the model with predictors (0.089)
compared to the intercept-only model (0.133), further supporting its superior predictive
accuracy.
An ANOVA confirmed that the overall regression model was statistically significant (p < .001),
indicating that at least one of the predictors significantly contributed to explaining the variance
in log returns. Several predictors were statistically significant, including experience (p < .001),
greed for profit (p < .001), use of strategy (p = .009), meditation (p = .005), Tai Chi (p < .001),
other holistic exercises (p < .001), and stress management in high-risk trading (p < .001). These
predictors were all positively associated with log returns. Conversely, prayer (p < .001) and
yoga (p = .014) showed negative associations.

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Importantly, the variable AF representing a measure of anticipatory feelings or intuition, was
positively associated with log returns (p = .014). This finding suggests that traders with higher
intuition scores tend to achieve higher log returns, supporting the idea that anticipatory feelings
or intuition can contribute to trading success. This aligns with existing research on the role of
intuition in decision-making, particularly in uncertain environments like financial markets
(Dane & Pratt, 2007; Gigerenzer & Gaissmaier, 2011).
The "Importance to News Feeds" and "Fear of losing" were not statistically significant
predictors in this model. This might indicate that these factors do not have a strong linear
relationship with log returns when considering the other predictors in the model.
Overall, this analysis highlights the complex interplay of factors contributing to trading success
and emphasizes the potential role of intuition in achieving higher returns. The findings suggest
that traders who are more attuned to their intuitive feelings or have a stronger ability to
anticipate market movements might be more successful. However, further research is needed
to explore the specific mechanisms through which intuition influences trading decisions and to
investigate potential interaction effects with other predictors.

Feature Model 1: Highest Return on Capital Model 2: Log Return

Dependent Variable Highest Return on Capital Log Return

Adjusted R² 0.589 0.603

RMSE 0.548 0.089

AIC 185.624 -195.744

BIC 222.779 -158.589

Table 3: R2, AIC and BIC comparing Return on Capital and Log of Return on Capital models

Unstandardized Std Error Standardized t p

(Intercept) 0.493 0.013 37.991 < .001

(Intercept) -0.696 0.167 -4.174 < .001

Experience 0.115 0.015 0.881 7.424 < .001

News-Feeds 0.008 0.014 0.046 0.569 0.57

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 Fear of losing 0.009 0.016 0.055 0.561 0.576

Greed for profit 0.063 0.012 0.437 5.11 < .001

Use of Strategy 0.046 0.018 0.201 2.65 0.009

Meditation 0.028 0.01 0.28 2.855 0.005

Prayer -0.064 0.012 -0.622 -5.483 < .001

Yoga -0.034 0.014 -0.34 -2.514 0.014
Tai Chi 0.074 0.019 0.423 3.886 < .001
Other holistic 0.061 0.013 0.622 4.804 < .001
exercises
Stress level while 0.064 0.013 0.488 4.784 < .001
taking-High Trade
AF 0.066 0.026 0.183 2.5 0.014

Figure 2 further complements the previous analysis of the linear regression output. The
significant predictors identified in the output (experience, greed for profit, use of strategy,
meditation, prayer, yoga, Tai Chi, other holistic exercises, stress management in high-risk
trading, and AF score) likely contribute to this good model fit. The plot visually confirms that
the model is effectively capturing the relationship between these predictors and "Log_Return"
With the points being mostly randomly scattered around the zero line, indicating that the
model's errors are not systematically biased. Homoscedasticity: The spread of the residuals
seems relatively consistent across the range of predicted values, supporting the assumption of
homoscedasticity (constant variance). However, there might be a few potential outliers,
particularly at the higher end of the predicted values, that deviate further from zero. Finaly
there are no obvious non-linear patterns or trends in the residuals, suggesting that the model
adequately captures the relationship in the data.

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Figure 2: Linear Regression Residual Vs Fitted
7. Understanding the interplay of cognitive and emotional factors in trader profitability
This study examined the relationship between traders' profitability, anticipatory feelings (AF),
and emotional factors. Bayesian model comparison revealed a complex interaction of variables
affecting trader performance. The model with the highest posterior probability (0.380) and
Bayes Factor (94.930) indicated that experience, reliance on news feeds, fear of loss, greed for
profit, strategic use, stress levels, participation in holistic practices (e.g., meditation, prayer,
yoga, and other exercises), and intuition collectively offer the most comprehensive explanation
for variations in trader returns. These results highlight the multifaceted nature of trading
success, underscoring the significance of cognitive and emotional components.
The prominent role of intuition in the best-performing model is consistent with prior research
emphasizing intuitive decision-making in complex and uncertain environments (Dane & Pratt,
2007; Gigerenzer & Gaissmaier, 2011). This finding aligns with observations that seasoned
traders frequently depend on "gut feelings" to navigate dynamic market situations (Coates &
Herbert, 2008). Nonetheless, the negative association between trust in intuition and reliance on
data-driven decision-making aligns with Alós-Ferrer and Hügelschäfer's (2012) findings,
suggesting that individuals with higher faith in intuition may rely less on available data,
potentially favoring heuristics like representativeness or reinforcement. This suggests a need
for traders to balance intuitive and analytical approaches effectively.
Moreover, the consistent inclusion of holistic practices in high-performing models suggests a
positive relationship with trading outcomes. This finding aligns with growing evidence that

12
mindfulness-based practices can enhance emotional regulation, decrease stress, and improve
concentration (Grossman et al., 2004; Tang et al., 2015), all of which are crucial in the high-
stress environment of financial trading. Incorporating such practices could help traders adopt a
balanced, mindful decision-making approach, potentially boosting performance.
Interestingly, adding Tai Chi to the model did not improve its predictive power, implying that
Tai Chi may not be a significant determinant of trading success in this dataset. Future research
could explore whether this finding is consistent across diverse trader demographics and market
conditions. The benefits of Tai Chi, such as enhanced coordination and balance, may be less
relevant to the cognitive and emotional demands of trading than other practices like meditation
or yoga.
The consistently high R² values (exceeding 0.98) across all Bayesian models indicate that the
variables included in the analysis explain a significant proportion of the variance in "highest
return on capital." This suggests these factors are critical to understanding trading success,
offering a strong foundation for future research to explore these interactions more deeply and
assess their relevance in different trading contexts.
To further investigate AF's role, a linear regression model was employed, with the log-
transformed "Highest Return on Capital" ("Log_Return") as the dependent variable. Results
indicated a positive association between traders' AF scores ("Intuition Score from DB") and
log returns (p = 0.014), supporting the hypothesis that AF contributes to trading success. This
finding aligns with broader research on anticipatory feelings and their role in decision-making
under uncertainty (e.g., Dane & Pratt, 2007; Gigerenzer & Gaissmaier, 2011).
The regression analysis also identified significant positive relationships between log returns
and variables such as experience (p < .001), greed for profit (p < .001), strategy use (p = .009),
meditation (p = .005), Tai Chi (p < .001), other holistic exercises (p < .001), and stress
management during high-risk trading (p < .001). Conversely, prayer (p < .001) and yoga (p =
.014) were negatively associated with log returns. These results highlight the complex interplay
of factors influencing trading success, emphasizing the potential benefits of integrating
analytical and intuitive methods while engaging in practices that support mindfulness and
emotional stability.
Residual plots for the linear regression model confirmed the model's good fit, with a significant
positive association between the "Intuition Score from DB" and "Log_Return." The
randomness and homoscedasticity of the residuals suggest the model's predictions are accurate,
reinforcing the conclusion that intuition or anticipatory feelings play a vital role in trading
performance.
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The study also highlights the feasibility of measuring intuitive decision-making through
physiological markers like galvanic skin response (GSR). Findings support the theory that GSR
reflects sympathetic activation, resulting in subtle changes in sweat production and measurable
shifts in skin conductance (Critchley, 2002; Payne, 2008). These findings are consistent with
Kandasamy et al.'s (2016) call for a deeper exploration of the mind-body connection and the
utilization of physiological indicators to measure somatic signals. Such tools could be
instrumental in developing and enhancing traders' intuitive capabilities, with substantial
implications for performance improvement.

8. Conclusion
This research contributes to the understanding of trader performance by highlighting the
intricate relationship between anticipatory feelings, emotional factors, and decision-making
processes. The findings emphasize the importance of intuition, holistic practices, and emotional
regulation in achieving trading success while also acknowledging the potential tension between
intuitive and analytical approaches. Further research is needed to explore these relationships in
greater depth and across diverse trading contexts, with a particular focus on developing
interventions and training programs that can enhance traders' intuitive abilities and overall
well-being.
9. Study Limitations
This study has some limitations that should be considered when interpreting the findings. First,
while we used a highly accurate GSR device to measure physiological responses associated
with anticipatory feelings, future research could benefit from incorporating self-report
measures of intuition, such as the Faith in Intuition questionnaire used by Alós-Ferrer and
Hügelschäfer (2012). This approach would allow for a more comprehensive assessment of
anticipatory feelings by combining objective physiological data with subjective self-
perceptions. Second, our sample size was limited to 27 traders from a single hedge fund
management company in Singapore. While this allowed for a detailed investigation within a
specific trading environment, the generalizability of the findings to the broader trading
population may be limited. Future studies with larger and more diverse samples are needed to
confirm the robustness of these results across different trading contexts and cultures.
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