59 Pages Posted: 3 Sep 2010 Last revised: 3 Jun 2014
Date Written: March 20, 2012
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: 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
By Ning Zhu