Use of multiple correspondence analysis to identify the influence of risk attitude on trading behaviour

Abstract

This study aims to examine the associations between risk attitude and trading behaviour using multiple correspondence analysis. Trading behaviour is represented by success in investment activity and frequency of trading on the foreign exchange market. Trading on the foreign exchange market was performed in real-life conditions via an electronic trading platform by a group of university students. The study empirically confirms associations among observed sets of categorical variables and defines patterns in given relationships. The study further shows that risk-averse investors are associated with low losses and low frequency of trading. Risk-neutral investors divert the frequency of trading with profitability corresponding to the frequency of trading, while risk lovers tend to have volatile trading behaviour and on average little success in trading. The results produced by multiple correspondence analysis of the observed sets of variables summarize the analogies between trading behaviour and risk attitude using a combined coordinated biplot as a diagnostic graphical method.