Do Individual Investors Have Asymmetric Information Based on Work Experience?

60 Pages Posted: 29 Jun 2009 Last revised: 12 Jul 2010

Trond Doskeland

Norwegian School of Economics (NHH) - Department of Business and Management Science

Hans K. Hvide

University of Bergen - Department of Economics; University of Aberdeen - Business School; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

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Date Written: July 11, 2010

Abstract

Using a novel dataset covering all individual investors' stock market transactions in Norway over 10 years, we analyze whether individual investors have a preference for professionally close stocks, and whether they make excess returns on such investments. After excluding own-company stock holdings, investors hold on average 11% of their portfolio in stocks within their two-digit industry of employment. Given the poor hedging properties of professionally close stocks, one would expect such investments to be associated with asymmetric information and abnormally high returns. In contrast, all our estimates of abnormal returns are negative, in many cases statistically significant. Overconfidence seems the most likely explanation for why individuals excessively trade in professionally close stocks.

Keywords: Asymmetric information, Behavioral finance, Familiarity, Household finance, Informed trading, Overconfidence

JEL Classification: D83, G11, J24

Suggested Citation

Doskeland, Trond and Hvide, Hans K., Do Individual Investors Have Asymmetric Information Based on Work Experience? (July 11, 2010). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1413782

Trond Doskeland

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Hans Hvide (Contact Author)

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen
Norway

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

HOME PAGE: http://hans.hvide.googlepages.com/

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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