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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.