Active trading and retail investors in Malaysia

The purpose of this paper is to investigate who trade actively in the Malaysian stock market and what determines investors’ active trading decisions.

Using a cross-sectional survey on individual investors, the study identifies active and inactive investors and then, investigates active trading by estimating binary logistic regression.

Active investors in Malaysia are more likely to be male, working in non-finance-related sectors and are more experienced. The likelihood of active trading increases with the number of hours spent on researching investment, very short-term favorable unemployment and economic growth expectations (three-month) and past investment outcomes, whereas this probability decreases with higher cognitive ability and short-term unemployment expectations.

The results imply that regulators may focus on certain groups of investors, based on the result of this study, and provide them training to reduce inactivity in this market. As active trading in response to past investment outcomes indicate rational response, regulators therefore may inform investors to learn about their ability and skill from their prior investment outcome, through educational program. Educational program may also include the role of macroeconomic indicators in active investing decisions.

This is the first study to combine a list of demographic and socio-economic characteristics, investment characteristics, macroeconomic expectations and past investment outcomes together to explain the likelihood of active trading.