Investor characteristics and trading behaviour: evidence from Finland

Abstract

This thesis investigates the dynamics of trading behaviour and provides a comprehensive assessment of the overall performance of all Finnish retail and institutional investors over the years 1995 through 2004 using detailed transaction data on daily trades and investor identities. In contrast to prior published studies for Finland, this study reveals a significantly superior performance achieved by households over institutions in the longer run, either before or after the trading expenses. Despite much lower transaction costs, institutions trade several times as much as the most active household age group that reduces their net return as much as for households. I also find institutional trading is the key contributor to the volatility of Nokia share price. This study further examines the trading performance of individual investors across gender and age bands and documents both males and females in their thirties are the best performing traders among their respective gender groups on either a gross or net basis. In term of gender, male groups show significantly higher turnover while females hold higher-risk stocks. Frequent trading reduces men’s net return more so than do women in all age groups. The life cycle hypothesis does not seem to apply to Finnish working males nearing retirement after Nokia price crashed in 2000. This age group of 60 to 69 were net buyers of Nokia shares, and hence does not indicate a movement out of a high-risk investment into cash or bonds. I find strong evidence of correlated trading among household groups with young and middle-aged males sharing the highest cross correlations between their contemporaneous buy intensity. The level of correlated trading is surprisingly persistent and increases year by year. This finding suggests that profitable herding behaviour encourages more information sharing among households over time.