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

59 Pages Posted: 3 Sep 2010 Last revised: 3 Jun 2014

Matti Keloharju

Aalto University - School of Business; Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)

Samuli Knüpfer

BI Norwegian Business School; Centre for Economic Policy Research (CEPR); Research Institute of Industrial Economics (IFN)

Juhani T. Linnainmaa

USC Marshall School of Business; National Bureau of Economic Research (NBER)

Date Written: March 20, 2012

Abstract

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.

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

JEL Classification: G11, G24, D83

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; Fama-Miller Working Paper; AFA 2012 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1670013 or http://dx.doi.org/10.2139/ssrn.1670013

Matti Keloharju

Aalto University - School of Business ( email )

P.O. Box 21210
AALTO, FI-00076
Finland
+358 40 353 8043 (Phone)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Samuli Knüpfer

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

HOME PAGE: http://www.samuliknupfer.com

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Research Institute of Industrial Economics (IFN)

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Juhani T. Linnainmaa (Contact Author)

USC Marshall School of Business ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Paper statistics

Downloads
679
Rank
28,894
Abstract Views
3,035