This paper documents that investors are more likely to hold, buy, and sell the stocks of Finnish firms that are located close to the investor, that communicate in the investor's native tongue, and that have chief executives of the same cultural background. The inf luence of distance, language, and culture is less prominent among the most investment-savvy institutions than among both households and less savvy institutions. Regression analysis indicates that the marginal effect of distance is less for firms that are more nationally known, for distances that exceed 100 kilometers, and for investors with more diversified portfolios.
A unique data set allows us to monitor the buys, sells, and holds of individuals and institutions in the Finnish stock market on a daily basis. With this data set, we employ Logit regressions to identify the determinants of buying and selling activity over a two‐year period. We find evidence that investors are reluctant to realize losses, that they engage in tax‐loss selling activity, and that past returns and historical price patterns, such as being at a monthly high or low, affect trading. There also is modest evidence that life‐cycle trading plays a role in the pattern of buys and sells.
An individual's IQ stanine, measured early in adult life, is monotonically related to his stock market participation decision later in life. The high correlation between IQ and participation, which exists even among the 10% most affluent individuals, controls for wealth, income, and other demographic and occupational information. Supplemental data from siblings are used with both an instrumental variables approach and paired difference regressions to show that our results apply to both females and males, and that omitted familial and non-familial variables cannot account for our findings. IQ also is related to diversification. High IQ investors are more likely to hold mutual funds and larger numbers of stocks, other things equal.
, who generated many insights that benefited this paper. We also thank Seppo Ikäheimo for his help in obtaining the data and Markku Kaustia, Samuli Knüpfer, Lauri Pietarinen, and Elias Rantapuska for participating in the analysis of the Finnish Central Securities Depository data. Financial support from the Academy of Finland, the Foundation for Economic Education, and the Paulo Foundation is gratefully acknowledged. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
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