Do Individual Investors have Asymmetric Information based on Work Experience?

Trond M. Doskeland, Hans K. Hvide

Research output: Contribution to journalArticle

35 Citations (Scopus)

Abstract

Using a novel dataset 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 on average 11% of their portfolio in stocks within their two-digit industry of employment. Given the poor hedging properties of professionally close stocks, one would expect such investments to be associated with asymmetric information and abnormally high returns. In contrast, all our estimates of abnormal returns are negative, in many cases statistically significant. Overconfidence seems the most likely explanation for why individuals excessively trade in professionally close stocks.
Original languageEnglish
Pages (from-to)1011-1041
Number of pages31
JournalThe Journal of Finance
Volume66
Issue number3
Early online date23 May 2011
DOIs
Publication statusPublished - Jun 2011

Keywords

  • individual investors
  • behavioral finance
  • rationality
  • portfolio

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