Abstract
Statman, Thorley, and Vorkink (2006), Chordia, Huh, and Subrahmanyam (2006) and Griffn, Nardari, and Stulz (2007) show that trading activity is related to past stock returns in the U.S. and internationally, and offer several conjectures about causes of this relation. Using nine years of account-level trading data for an entire country (Finland), I ¯nd that two separate effects are driving this result. The first is increased trading after higher individual stock returns, and the second is increased trading after larger account-level losses and gains. The first effect is consistent with momentum trading and with the disposition effect, and that the second is consistent with overconfidence and loss aversion. Since the two effects compete when markets are down, my findings offer an explanation of why some studies find that turnover is positively related to past returns and others find that it is related to the absolute value of past returns.
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