Investors’ trading activity: A behavioural perspective and empirical results

This study attempts to group investors (individuals and professionals) into different segments based on their psychological biases and personality traits and, then, to examine whether, and how, these biases and traits drive their investment behaviour. The behavioural finance literature suggests four main factors that influence investment behaviour: overconfidence, risk tolerance, self-monitoring and social influence. Adopting this approach, a cluster analysis of data from a representative survey of 345 investors in Greece identified three main segments of investors: high profile investors (a high degree of overconfidence, risk tolerance, self-monitoring and social influence), moderate profile investors (a moderate level of overconfidence, risk tolerance, self-monitoring and social influence) and low profile investors (a low degree of overconfidence, risk tolerance, self-monitoring and social influence). The major finding of the analysis shows that the higher the investors’ profile, the higher the performance of these investors on stock trading. The results will expand investors’ knowledge about the financial decision-making process and trading behaviour.

► This study classifies investors into different profiles based on their psychological biases and personality traits. ► We examine whether, and how, these biases and traits drive their investment behaviour. ► There are three investor profiles that differ in their trading behaviour.