Do Individual Investors Have Asymmetric Information Based on Work Experience?

Authors

  • TROND M. DØSKELAND,

  • HANS K. HVIDE

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    • Trond M. Døskeland is with Norwegian School of Economics (NHH). Hans K. Hvide is with University of Aberdeen Business School, CEPR, and NHH. This work is part of the project “Portfolio Choices of Norwegian Investors,” funded by the Norwegian Research Council (Finansmarkedsfondet) under grant number 178944. We thank Verdipapirsentralen (The Norwegian Central Securities Depository) for providing the data. We thank Daniel Hoechle, Per Östberg, and seminar participants for their comments, Børsprosjektet at NHH and Øystein Hungerholt for their helpful assistance, and Bernt Arne Ødegaard for providing us with the risk factors for the Oslo Stock Exchange. Finally, we are especially thankful for the comments of an anonymous referee, an associate editor, and the Editor, Campbell Harvey.


ABSTRACT

Using a novel data set covering all individual investors' stock market transactions in Norway over 10 years, we analyze whether individual investors have a preference for professionally close stocks, and whether they make excess returns on such investments. After excluding own-company stock holdings, investors hold 11% of their portfolio in stocks within their two-digit industry of employment. Given the poor hedging properties of such investments, one would expect abnormally high returns. In contrast, all estimates of abnormal returns are negative, in many cases statistically significant. Overconfidence seems the most likely explanation for the excessive trading in professionally close stocks.

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