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

Author

Listed:
  • Matti Keloharju
  • Samuli Knüpfer
  • Juhani Linnainmaa

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.

Suggested Citation

  • Matti Keloharju & Samuli Knüpfer & Juhani Linnainmaa, 2012. "Do Investors Buy What They Know? Product Market Choices and Investment Decisions," Review of Financial Studies, Society for Financial Studies, vol. 25(10), pages 2921-2958.
  • Handle: RePEc:oup:rfinst:v:25:y:2012:i:10:p:2921-2958
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    File URL: http://hdl.handle.net/10.1093/rfs/hhs090
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    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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