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Do Investors Buy What They Know? Product Market Choices and Investment Decisions

Matti Keloharju

Aalto University

Samuli Knüpfer

London Business School; Centre for Economic Policy Research (CEPR)

Juhani T. Linnainmaa

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

March 20, 2012

Chicago Booth Research Paper No. 10-24
AFA 2012 Chicago Meetings Paper
Fama-Miller Working Paper

This paper shows individuals’ product market choices influence their investment decisions. Using microdata from the brokerage and automotive industries, we find a strong positive relation between customer relationship, ownership of a company, and size of the ownership stake. Investors also are more likely to purchase and less likely to sell shares of companies they frequent as customers. These effects are stronger for individuals with longer customer relationships. A merger-based natural experiment supports a causal interpretation of our results. We find weaker causality in the other direction: inheritances and gifts of stocks have only a modest effect on individuals’ patronage decisions. A setup in which customer-investors regard stocks as consumption goods, not just as investments, seems to best explain our results.

Number of Pages in PDF File: 59

Keywords: Investor behavior, portfolio choice, product market, ownership

JEL Classification: G11, G24, D83

working papers series

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Date posted: September 3, 2010 ; Last revised: March 24, 2012

Suggested Citation

Keloharju, Matti and Knüpfer, Samuli and Linnainmaa, Juhani T., Do Investors Buy What They Know? Product Market Choices and Investment Decisions (March 20, 2012). Chicago Booth Research Paper No. 10-24; AFA 2012 Chicago Meetings Paper; Fama-Miller Working Paper. Available at SSRN: http://ssrn.com/abstract=1670013 or http://dx.doi.org/10.2139/ssrn.1670013

Contact Information

Matti Keloharju
Aalto University ( email )
Runeberginkatu 22-24
Helsinki, 00100
+358 9 470 38486 (Phone)
+358 9 470 38678 (Fax)
HOME PAGE: http://www.hse.fi/EN/HKI/K/Matti_Keloharju/12_PersonalPage.htm
Samuli Knüpfer
London Business School ( email )
Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
HOME PAGE: http://faculty.london.edu/sknupfer
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Juhani T. Linnainmaa (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
(773) 834-3176 (Phone)
(773) 753-1052 (Fax)
HOME PAGE: http://faculty.chicagobooth.edu/juhani.linnainmaa
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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References:  45
Citations:  1

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