Patterns of trading profiles at the Nordic Stock Exchange. A correlation-based approach

TL;DR

This paper introduces a correlation-based method to analyze and detect hierarchical structures in the trading profiles of individual investors on the Nordic Stock Exchange, enhancing understanding of investor heterogeneity.

Contribution

The study presents a novel correlation-based approach combined with statistically validated networks to identify and analyze hierarchical clustering of investor trading behaviors.

Findings

Hierarchical structures of investor profiles are highly overlapping with cluster structures.

The combined method provides robust and reliable clustering of trading profiles.

Investor heterogeneity is significant and can be effectively characterized using the proposed approach.

Abstract

We investigate the trading behavior of Finnish individual investors trading the stocks selected to compute the OMXH25 index in 2003 by tracking the individual daily investment decisions. We verify that the set of investors is a highly heterogeneous system under many aspects. We introduce a correlation based method that is able to detect a hierarchical structure of the trading profiles of heterogeneous individual investors. We verify that the detected hierarchical structure is highly overlapping with the cluster structure obtained with the approach of statistically validated networks when an appropriate threshold of the hierarchical trees is used. We also show that the combination of the correlation based method and of the statistically validated method provides a way to expand the information about the clusters of investors with similar trading profiles in a robust and reliable way.