THREE ESSAYS ON THE TRADING BEHAVIOUR OF INDIVIDUAL INVESTORS

Abstract

This thesis contains three stand-alone empirical chapters dedicated to contributing to the field of behavioural finance by exploring the behavioural differences among investors and the factors that influence their trading behaviour.
The first empirical chapter analyses the existence of gender difference in herding, the possible causes, and the consequences of the higher herding tendency. The main findings suggest that female investors herd more intensively and lose more than males, especially during bull markets. Market conditions and stock characteristics affect females and males in similar ways, and the lower portfolio turnover of females is the primary source of gender effect on herding.
The second empirical chapter of this thesis examines investors’ buying behaviour with an emphasis on the financial crisis period beginning in October 2007. The results show that individual investors, especially males and the younger investors, tend to provide liquidity by acting as net buyers when the market crashes. The findings also indicate that better performance during the financial crisis encouraged investors to be overconfident, thus exhibiting self- attribution bias. The results of the stock-level analysis suggest that investors tend to purchase stocks with poor short-term past performance, higher liquidity, and larger market capitalization. Lastly, we do not find evidence that a superior stock-picking ability or a higher propensity to gamble can explain the intensive buying during market downturns.
The final empirical chapter focuses on investors’ reactions to earnings surprises. The outcomes suggest that individual investors increase (reduce) their holdings on stocks with positive (negative) earnings surprises. This chapter also explores to what extent the media tone could influence investors’ reactions, and the evidence shows that investors overreact to good (bad) earnings news for firms with positive (negative) media tone than for those with negative (positive) media tone. The media effect is also more pronounced for firms with negative earnings surprises and for investors with lower wealth and poorly diversified portfolios.