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

Matti Keloharju, Samuli Knüpfer and Juhani Linnainmaa

The Review of Financial Studies, 2012, vol. 25, issue 10, 2921-2958

Abstract: This article shows that 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 are also 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 also find evidence of causality in the other direction: inheritances and gifts have an 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. (JEL G11, G24, D83) The Author 2012. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

Date: 2012
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