Prior studies have examined the inter-related themes of stock trading behavior and investing performance, generally documenting significant differences across investor types. Although some consensus views have emerged (e.g. retail investors being underperforming contrarians whereas foreigners and institutions momentum-trade and perform relatively well), the findings have seemingly not always been consistent. Consequently, these topics have attracted quite significant recent interest.

This thesis studies the trading characteristics and investing performance of three investor groups - foreigners, domestic households and other domestic investors - in OMX Helsinki (2006 – 2015). The thesis seeks to answer i) whether the groups possess distinct behavioral trading characteristics (momentum or contrarian tendencies and net equity flow persistence); ii) what kinds of investing returns the groups achieved in OMX Helsinki; and iii) whether their net equity flows can be used to aid in predicting subsequent short-term returns.

The motivation of the study is threefold: i) some of the aspects have not been, to the best of my knowledge, studied in the context of the Finnish stock market; ii) those questions covered in prior work concerning the Finnish market are based on relatively old data and mostly displaced methodology: thus, a premise exists for an update; and iii) the existing literature is in many parts inconclusive, markedly leaving matters unexplained and available for further research.

To answer the research questions, month-to-month ownership data was gathered for the included OMXH25 companies and used to determine monthly net equity flows and investing-related cash flows of the investor groups. These were used to analyze the relationships between equity flows (behavior) and returns by employing structural vector autoregression (SVAR) as the main methodology. The performance was analyzed by tracking the cash flows of the groups and determining risk-adjusted internal rate of return measures.

The key findings are the following: 1) the groups’ net equity flows were verified be persistent; 2) the domestic investors were found to share trading traits with each other that are clearly different from those for the group of foreigners; 3) both domestic investor groups were found to behave as contrarians while the foreigners showed momentum behavior; 4) no statistically significant subsequent return predictability was found; 5) over the full market cycle (2007/10 - 2015/12), the domestic households were found to have performed surprisingly well (with estimated investing IRR of 7,2 % p.a.), economically and statistically significantly outperforming both the foreigners (3,5 % p.a.) and the other domestic investors (1,8 % p.a.). The outperformance stems from both successful trading within the multi-year period and a favorable initial portfolio.

This performance finding is in conflict with the majority of the existing literature. The reason for this is outside the scope of the thesis and suggested for further research. The other findings are largely in line with the existing majority opinion from findings around the world. This seems to imply that these phenomena likely stem from some fundamental and persistent characteristics that vary across investor types.