Abstract
Although the understanding of and motivation behind individual trading behavior is an important puzzle in finance, little is known about the connection between an investor's portfolio structure and her trading behavior in practice. In this paper, we investigate the relation between what stocks investors hold, and what stocks they buy, and show that investors with similar portfolio structures to a great extent trade in a similar way. With data from the central register of shareholdings in Sweden, we model the market in a similarity network, by considering investors as nodes, connected with links representing portfolio similarity. From the network, we find investor groups that not only identify different investment strategies, but also represent individual investors trading in a similar way. These findings suggest that the stock portfolios of investors hold meaningful information, which could be used to earn a better understanding of stock market dynamics.
Highlights
Stock market trading provides opportunities at the cost of risk
We show that there is a relationship between stock portfolio structure and trading, namely, that individual investors with similar portfolio structures tend to trade in a similar way
We find that the stock market displays a structure among its investors, with groups that represent investors with similar portfolio structures
Summary
Stock market trading provides opportunities at the cost of risk. For investors, the ultimate trading goal is to make as much money as possible by acting in such a way that the highest possible profit is realized at minimal risk. The traditional approach to represent market trading has been a model perspective, assuming that investors act as rational and identical agents [1,2] This assumption has been challenged by empirical evidence, which suggests that other elements are present in financial markets [3]. Researchers have suggested models in which the economic decisions of investors consider the effects of social, cognitive, and emotional factors These factors and their influence on trading are often studied with data external to the actual trading process and include, for example, proximity [4], social media interactions [5] and web engine search queries [6,7], In this work, we instead focus on data more directly relevant to the trading by relating trading patterns and behavioral biases to stock portfolio structure. With real financial data on individual investors from the Swedish stock market, we study the connection between what stocks investors hold, and what stocks they buy
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
