Skip Navigation


RFS Advance Access originally published online on January 19, 2006
Review of Financial Studies 2006 19(2):633-685; doi:10.1093/rfs/hhj013
This Article
Right arrow Full Text
Right arrow Full Text (PDF)
Right arrow All Versions of this Article:
19/2/633    most recent
hhj013v1
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Similar articles in this journal
Right arrow Similar articles in ISI Web of Science
Right arrow Alert me to new issues of the journal
Right arrow Add to My Personal Archive
Right arrow Download to citation manager
Right arrow Search for citing articles in:
ISI Web of Science (5)
Right arrowRequest Permissions
Google Scholar
Right arrow Articles by Massa, M.
Right arrow Articles by Simonov, A.
Right arrow Search for Related Content
Social Bookmarking
Add to CiteULike   Add to Connotea   Add to Del.icio.us  
What's this?

© The Author 2006. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org.

Hedging, Familiarity and Portfolio Choice

Massimo Massa
INSEAD

Andrei Simonov
Stockholm School of Economics

Address correspondence to M. Massa, Finance Department, INSEAD, Boulevard de Constance, 77305 Fontainebleau Cedex, France, or email: massimo.massa{at}insead.edu.

We exploit the restrictions of intertemporal portfolio choice in the presence of nonfinancial income risk to test hedging using the information contained in the actual portfolio of the investor. We use a unique data set of Swedish investors with information broken down at the investor level and into various components of investor wealth, income, and demographic characteristics. Portfolio holdings are identified at the stock level. We show that investors do not hedge but invest in stocks closely related to their nonfinancial income. We explain this with familiarity, that is, the tendency to concentrate holdings in stocks to which the investor is geographically or professionally close or that he has held for a long period. We show that familiarity is not a behavioral bias, but is information driven. Familiarity-based investment allows investors to earn higher returns than they would have otherwise earned if they had hedged.


Add to CiteULike CiteULike   Add to Connotea Connotea   Add to Del.icio.us Del.icio.us    What's this?


This article has been cited by other articles:


Home page
 Review of FinanceHome page
P. Sercu and R. Vanpee
Estimating the Costs of International Equity Investments
Review of Finance, August 22, 2008; (2008) rfn021v1.
[Abstract] [Full Text] [PDF]

Home page
 Review of FinanceHome page
C. Christiansen, J. S. Joensen, and J. Rangvid
Are Economists More Likely to Hold Stocks?
Review of Finance, January 1, 2008; 12(3): 465 - 496.
[Abstract] [Full Text] [PDF]

Home page
 REV FINANC STUDHome page
Z. Ivkovic and S. Weisbenner
Information Diffusion Effects in Individual Investors' Common Stock Purchases: Covet Thy Neighbors' Investment Choices
Rev. Financ. Stud., July 1, 2007; 20(4): 1327 - 1357.
[Abstract] [Full Text] [PDF]


Disclaimer:
Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department.