Contrarians or Momentum Chasers? Individual Investors’ Behavior When Trading ETFs

Abstract

Conducting the first study of momentum impact on households’ ETF trading behavior, we find that Finnish households are less contrarian when trading benchmark index ETFs than when trading common stocks. Also, their propensity to chase recent positive momentum is higher when purchasing ETFs than when purchasing stocks. As expected, results are stronger for ETF purchases than sales. Our findings are consistent with hypotheses that households are less overconfident trading index ETFs than common stocks, that contrarian behavior is more often rational when trading stocks than when trading ETFs, and that households trade ETFs for the long run.

Keywords: ETF, Momentum, Contrarian, Household, Behavior

JEL Classification: G11, G40