Clustering Fosters Investment: Local Agglomeration and Household Portfolio Choice

49 Pages Posted: 15 Mar 2019

See all articles by Jawad M. Addoum

Jawad M. Addoum

Cornell University

Stefanos Delikouras

University of Miami - Department of Finance

Da Ke

University of South Carolina

George M. Korniotis

University of Miami; Miami Business School; University of Miami - Behavioral Decision Making Cluster

Date Written: February 26, 2019

Abstract

We investigate the impact of local agglomeration economies on household portfolio choice. Using detailed location and employment data from two U.S. household surveys, we document that individuals who work in locally agglomerated industries are more likely to invest in risky assets. This pattern cannot be explained by households sorting on latent factors, local employers' stock compensation and pension policies, or investors' local biases. Instead, the relation between local agglomeration and portfolio decisions is consistent with industry clusters enhancing human capital and in turn, raising workers' effective risk tolerance. Our findings highlight the role of geography in shaping household financial decisions.

Keywords: local agglomeration, household portfolio choice, human capital

JEL Classification: G11, J24, R23

Suggested Citation

Addoum, Jawad M. and Delikouras, Stefanos and Ke, Da and Korniotis, George M., Clustering Fosters Investment: Local Agglomeration and Household Portfolio Choice (February 26, 2019). 9th Miami Behavioral Finance Conference 2018. Available at SSRN: https://ssrn.com/abstract=2909168 or http://dx.doi.org/10.2139/ssrn.2909168

Jawad M. Addoum

Cornell University ( email )

Ithaca, NY 14853
United States

Stefanos Delikouras

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

Da Ke

University of South Carolina ( email )

1014 Greene Street
Columbia, SC 29208
United States
(803) 576-5701 (Phone)

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

George M. Korniotis (Contact Author)

University of Miami ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
305-284-5728 (Phone)

Miami Business School ( email )

University of Miami - Behavioral Decision Making Cluster ( email )

5250 University Drive
Coral Gables, FL 33124
United States

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