Why Do Investors Trade in Equity Derivatives? A Literature Review

The derivatives market is an important asset class and has been found to positively contribute to economic development. It has sparked interest from researchers, policymakers and financial agencies. This article aims to present a literature review that explains the motive of individual investors to trade in equity derivatives. Studies from 1997 to 2023 were extracted from SCOPUS, Emerald and Web of Science using the keywords, and articles were later refined with their motive, research methodology, source of data, journal, year of publication, country-wise articles published and publication source to explore the opportunities for further research. VOS viewer has been used to visualize the author keyword and link among various keywords. This study reviews 51 articles, which were found relevant and have been segregated theme-wise. The motives of investors are categorized as ‘Hedging vs. speculation’, ‘Return vs. risk’ and ‘Gambling’. The findings of the study show that most of the studies are conducted in the USA using discount house data and most of the articles were published in the Journal of Banking and Finance. The findings of the study will be useful to the researchers, practitioners, stock exchanges and regulators by providing the current landscape of the body in this domain.