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

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 ar...

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Bibliographic Details
Published in:The Review of financial studies 2012-10, Vol.25 (10), p.2921-2958
Main Authors: Keloharju, Matti, Knüpfer, Samuli, Linnainmaa, Juhani
Format: Article
Language:English
Subjects:
Automobiles
Brokerages
Causality
Consumer goods industries
Customer relations
Customers
Equity
Financial portfolios
Investment analysis
Investment decision
Investment decisions
Investment policy
Investors
Marketing strategies
Personal finance
Product choice
Public relations
Stock prices
Stock shares
Studies
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Summary: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.
ISSN:0893-9454
1465-7368
DOI:10.1093/rfs/hhs090