Investors' performance and trading behavior on the Norwegian stock market
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This dissertation examines investors’ performance and trading behavior on the Norwegian stock market, using a unique and extensive data set of monthly holdings of all the investors. The first paper studies how Norwegian individual investors, financial institutional investors and foreign investors affect stock return volatility and finds surprising and interesting results: domestic individual investors and financial institutional investors dampen stock return volatility, and foreign investors exacerbate stock return volatility. While the result that individual investors reduce stock return volatility is similar to the implication of the findings in Sias (1996) and Malkiel and Xu (2003), it is inconsistent with the traditional assumption that individual investors are noise traders who make stocks more volatile. It is also striking that domestic financial institutional investors and foreign investors have opposite impact on stock return volatility, although we usually assume that institutional investors, regardless of geographical locations, have similar impact on the stock market. The explanations are that foreign investors are momentum traders, trade the most and have the shortest investment horizon; individual investors are contrarian traders, trade the least and have the longest investment horizon; and financial investors fall somewhere in-between. The second paper examines whether some individual investors can successfully time the stock market, in the sense that they invest more in the stock market conditional on the forecast that the stock market will perform well in the subsequent period and reduce their equity portfolio holding when the stock market underperforms the bond market. The results show that some individual investors can successfully time the market at 1 to 6 month horizons with the strongest results at the quarterly horizon. We show that individual investors with positive and significant timing ability have higher performance than that of investors with no or negative timing ability, which indicates that our results that some individual investors can time the stock market are not spurious. The third paper examines whether some individual investors can outperform the market and can do so persistently, using unique data on month-end stock market portfolios of all individual investors over an eleven-year period. By using different measures of portfolio performance and various analysis methodologies, this paper finds that a sizable of individual investors exhibit economically and statistically significant performance persistence. The performance persistence exists not only for investors with poor prior performance but also for investors with top performance.