Abstract

A unique data set allows us to monitor the buys, sells, and holds of individuals and institutions in the Finnish stock market on a daily basis. With this data set, we employ Logit regressions to identify the determinants of buying and selling activity over a two-year period. We find evidence that investors are reluctant to realize losses, that they engage in tax-loss selling activity, and that past returns and historical price patterns, such as being at a monthly high or low, affect trading. There also is modest evidence that life-cycle trading plays a role in the pattern of buys and sells. THE EXTRAORDINARY DEGREE OF TRADING ACTIVITY in financial markets represents one of the great challenges to the field of finance. Many theoretical models in finance, such as those found in Aumann ~1976! and Milgrom and Stokey ~1982!, argue that there should be no trade at all. Empirical research by Odean ~1999! also shows that the trades of many investors not only fail to cover transaction costs, but tend to lose money before transaction costs. To

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