Trading Signatures: Investor Attention Allocation in Stock Markets

20 Pages Posted: 18 Sep 2020 Last revised: 30 Apr 2021

See all articles by Kęstutis Baltakys

Kęstutis Baltakys

Tampere University

Juho Kanniainen

Tampere University

Jari Saramäki

Aalto University

Mikko Kivela

Aalto University

Date Written: April 30, 2021

Abstract

Investors in stock markets face a huge amount of financial information. For that reason, they must decide how to distribute their limited attention across different securities. We propose a new measure of investor attention, called the trading signature. This measure allows us to analyze whether there are heterogeneous, persistent, and characteristic patterns in the way how investors distribute their attention. Our study builds on a large data set that contains every transaction of hundreds of thousands of households and financial institutions in a stock market for over 20 years. We find that the ways how investors distribute their attention are not only distinctive but invariant with respect to changes in their portfolios. Moreover, investor behavior is surprisingly persistent: it takes at least seven years for an investor to significantly change her attention distribution. These observations are strikingly similar to recent findings on how people manage their social networks. However, in contrast to social relationships, time constraints do not appear to limit investors’ activeness in the markets: the larger is an investor’s portfolio, the more frequently each security is traded on average. A possible explanation is that different trading strategies require different amounts of effort, and an investor can switch between the strategies if she changes the size of her portfolio.

Keywords: trading signatures, complex networks, investor behavior, stock market

JEL Classification: G11

Suggested Citation

Baltakys, Kęstutis and Kanniainen, Juho and Saramäki, Jari and Kivela, Mikko, Trading Signatures: Investor Attention Allocation in Stock Markets (April 30, 2021). Available at SSRN: https://ssrn.com/abstract=3687759 or http://dx.doi.org/10.2139/ssrn.3687759

Kęstutis Baltakys (Contact Author)

Tampere University ( email )

Tampere, FIN-33101
Finland

Juho Kanniainen

Tampere University ( email )

P.O. 541, Korkeakoulunkatu 8 (Festia building)
Tampere, FI-33101
Finland

HOME PAGE: http://https://sites.google.com/site/juhokanniainen/

Jari Saramäki

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101
Finland

Mikko Kivela

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101
Finland

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