Do Individual Investors Have Asymmetric Information Based on Work Experience?

Do Individual Investors Have Asymmetric Information Based on Work Experience?

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Article ID: iaor201112067
Volume: 66
Issue: 3
Start Page Number: 1011
End Page Number: 1041
Publication Date: Jun 2011
Journal: The Journal of Finance
Authors: ,
Keywords: Norway, stock market
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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