Matti Keloharju's research while affiliated with Research Institute of Industrial Economics and other places

Publications (49)

Article
Long-term expected returns do not appear to vary in the cross section of stocks. We show that even negligible persistent differences in expected returns, if they existed, would be easy to detect. Markers of such differences, however, are absent from actual stock returns. Our results are consistent with behavioral models and production-based asset p...
Article
Stocks tend to earn high or low returns relative to other stocks every year in the same month (Heston and Sadka, 2008). We show these seasonalities are balanced out by seasonal reversals: a stock that has a high expected return relative to other stocks in one month has a low expected return relative to other stocks in the other months. The seasonal...
Article
Full-text available
We use exceptionally rich data on all business, economics, and engineering graduates in Sweden to study women's career progression and its causes. A wide range of observables do not explain the lack of women in top executive positions. Instead, slow career progression in the five years after the first childbirth substantially contributes to the fem...
Article
What makes a successful CEO? We combine a near-exhaustive sample of male CEOs from Swedish companies with data on their cognitive and noncognitive ability and height at age 18. CEOs differ from other high-skill professions most in noncognitive ability. The median large-company CEO belongs to the top 5% of the population in the combination of the th...
Article
A strategy that selects stocks based on their historical same-calendar-month returns earns an average return of 13% per year. We document similar return seasonalities in anomalies, commodities, and international stock market indices, as well as at the daily frequency. The seasonalities overwhelm unconditional differences in expected returns. The co...
Article
Using a comprehensive dataset of Finnish males, we study IQ’s influence on mutual fund choice. High-IQ investors are less likely to own categories of funds that tend to charge higher fees — including balanced funds, actively managed funds, and funds marketed through a retail network. Moreover, within categories of funds stratified by asset class, i...
Article
Well-diversified portfolios of stocks formed by either characteristics or factor loadings have relatively high or low returns every year in the same calendar month. These common seasonalities account for at least 80% of the seasonalities in individual stock returns. The source of seasonalities matters: a trading strategy that tries to profit from s...
Article
This paper shows individuals’ product market choices influence their investment decisions. Using microdata from the brokerage and automotive industries, we find a strong positive relation between customer relationship, ownership of a company, and size of the ownership stake. Investors also are more likely to purchase and less likely to sell shares...
Article
Stock market participation is monotonically related to IQ, controlling for wealth, income, age, and other demographic and occupational information. The high correlation between IQ and participation exists even among the affluent. Supplemental data from siblings, studied with an instrumental variables approach and regressions that control for family...
Article
Full-text available
for their comments and suggestions. We are grateful to Prime Database for IPO data and Yongjin Ma for providing research assistance. The authors received financial support and additional data under a research initiative by the National Stock Exchange of India (NSE). All remaining errors are our own.
Article
This paper shows that investors’ product market experiences influence their investment decisions. Using brand-level microdata from the brokerage and automotive industries, we find a strong positive relation between customer relationship, ownership of a company, and size of the ownership stake. Investors also are more likely to purchase and less lik...
Article
We analyze whether IQ influences trading behavior, performance, and transaction costs. The analysis combines equity return, trade, and limit order book data with two decades of scores from an intelligence test administered to nearly every Finnish male of draft age. Controlling for a variety of factors, we find that high-IQ investors are less subjec...
Article
Twenty countries around the world have used $27 billion in incentives such as bonus shares and discounts to attract retail investors to participate in privatizations and to discourage them from flipping their shares. Our results show that incentives have performed well, increasing retail investor participation much more cost effectively than underp...
Article
This paper prepares a list of the 300 most cited articles published in the area of Finance during the period 2000–2006. The articles are ranked based on the ratio of the number of citations and the number of years since publication, as of August 2007. Citation data come from Google Scholar and cover all articles in 29 Finance journals and Finance a...
Article
This study analyzes the automobile purchase behavior of all residents of two Finnish provinces over several years. Using a comprehensive data set with location coordinates at the individual consumer level, it finds that the purchases of neighbors, particularly in the recent past and by those who are geographically most proximate, influence a consum...
Article
"This paper prepares a list of the 300 most cited articles published in the area of Finance during the period 2000-2006. The articles are ranked based on the ratio of the number of citations and the number of years since publication, as of August 2007. Citation data come from Google Scholar and cover all articles in 29 Finance journals and Finance...
Article
This paper provides evidence that the positive relation between firm-level stock returns and firm-level return volatility is due to real options that firms possess. Consistent with the theoretical prediction that the value of a real option should be increasing in the volatility of the underlying asset, we find that the positive volatility-return re...
Article
This study analyzes the fees of mutual funds and the choices of mutual fund investors. Using a comprehensive dataset on males in two Finnish provinces, we find that the fees of funds selected by high IQ investors are not significantly lower than the fees of funds selected by low IQ investors. This conclusion controls for a variety of fund and indiv...
Article
We use data on all retail investors participating in all IPOs in a market (183,000 investors and 57 IPOs in Finland over 1995–2002) to study the impact of past experience on future actions. We find a very strong link between personal experience with IPOs and future subscriptions. The returns actually experienced by an investor have strong explanato...
Article
This study analyzes the role that two psychological attributes%u2014sensation seeking and overconfidence%u2014play in the tendency of investors to trade stocks. Equity trading data are combined with data from an investor%u2019s tax filings, driving record, and psychological profile. We use the data to construct measures of overconfidence and sensat...
Article
We contribute to the debate on the optimal design of multiunit auctions by developing and testing robust implications of the leading theory of uniform price auctions on the bid distributions submitted by individual bidders. The theory, which emphasizes market power, has little support in a data set of Finnish Treasury auctions. A reason may be that...
Article
Finnish investors realize losses more than gains toward the end of December. Moreover, they repurchase the same stocks recently sold. The repurchase rate depends on loss magnitude, firm size, and how late in the year the sale takes place. This trading pattern generates net tax-loss buying pressure that is negative prior to the turn of the year and...
Article
I modify the uniform-price auction rules in allowing the seller to ration bidders. This allows me to provide a strategic foundation for underpricing when the seller has an interest in ownership dispersion. Moreover, many of the so-called "collusive-seeming" equilibria disappear.
Article
This study analyzes the automobile purchase behavior of all residents of two Finnish provinces over several years. It finds that a consumer's purchases are strongly influenced by the purchases of his neighbors, particularly purchases in the recent past and by neighbors who are geographically most proximate. Most of the evidence points to informatio...
Article
We study uniform price auctions using a dataset that includes individual bidders' demand schedules in Finnish Treasury auctions during the period 1992-99. Average underpricing amounts to 0.041% of face value. Theory suggests that underpricing may result from monopsonistic market power. We develop and test robust implications from this theory and fi...
Article
This study examines investor performance in IPOs using a unique database comprising 85,384 investors and 29 offerings from Finland. The evidence indicates that on average institutional investors do not obtain larger initial returns than retail investors, as the incentive to acquire information is limited by allocation rules which favour small order...
Article
Finnish investors realize losses more than gains toward the end of December. Moreover, they repurchase the same stocks recently sold. The repurchase rate depends on loss magnitude, firm size, and how late in the year the sale takes place. This trading pattern generates net tax-loss buying pressure that is negative prior to the turn of the year and...
Article
This paper presents a descriptive analysis of the primary and secondary market for Finnish treasury bonds. The paper focuses on three issues. First, we report basic descriptive statistics such as auction volumes and secondary market yields and volumes. Second, we estimate the revenues earned by primary dealers from the treasury bond market. Third,...
Article
This study examines the determinants of the decision to raise currency debt. The results suggest that hedging figures importantly in the currency–of–denomination decision: firms in which exports constitute a significant fraction of net sales are more likely to raise currency debt. However, firms also tend to borrow in periods when the nominal inter...
Article
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 influence of distance, language, and culture is less prominent among the most investment-...
Article
This paper provides evidence that firms issuing new shares at higher discounts and hence with larger expected dividend increases, use their opportunities for earnings management in such a way that, by the year of a share issue, they report larger earnings in excess of current dividends than firms that issue shares at lower discounts or that do not...
Article
Recent studies argue that the spread-adjusted Taylor rule (STR), which includes a response to the credit spread, replicates monetary policy in the United State. We show (1) STR is a theoretically optimal monetary policy under heterogeneous loan interest rate contracts in both discretionay and commitment monetary policies, (2) however, the optimal r...
Article
Finnish firms are known to manage earnings downwards to avoid income taxes. This study suggests that they simultaneously manage earnings upwards in a smaller scale. The idea behind this behaviour is that humans may perceive a profit of, say, 301 million as abnormally larger than a profit of 298 million. Consequently, firms tend to adjust the second...
Article
Using data from Finland, this study analyzes the extent to which past returns determine the propensity to buy and sell. It also analyzes whether these differences in past-return-based behavior and differences in investor sophistication drive the performance of various investor types. We find that foreign investors tend to be momentum investors, buy...
Article
This study examines the determinants of the decision to raise foreign currency denominated debt by taking advantage of a unique and comprehensive sample of private and public debt raised by 44 Finnish corporations. The results suggest that small firms borrow from domestic banks and insurance companies and in the domestic currency, while large firms...
Article
This study examines a unique Finnish database comprising 85,384 investors and 29 IPOs. The evidence indicates that on average institutional investors do not realize larger initial returns than retail investors, as the incentive to acquire information is limited by allocation rules which favor small orders. Within each investor category, however,lar...
Article
Using a sample of Finnish initial public offerings, we find that the fraction of equity retained by the original shareholders is significantly positively related to the market-to-brook ratio. The result is consistent with the Leland and Pyle (1977) hypothesis suggesting that the original shareholders can signal the quality of their firm by their wi...
Article
I modify the uniform-price auction rules in allowing the seller to ration bidders. This allows me to provide a strategic foundation for underpricing when the seller has an interest in ownership dispersion. Moreover, many of the so-called "collusive-seeming" equilibria disappear.
Article
Rationing data for initial public offerings (IPOs) in the Finnish market make possible a test of Rock's (1986) winner's curse hypothesis. The evidence from 80 IPOs issued between 1984 and 1989 confirms the presence of the winner's curse: average returns adjusted for the bias in allocation are lower than average unadjusted returns. But the initial r...
Article
Abstract Using data from Finland, this study analyzes the extent to which past returns determine,the propensity,to buy,and sell. It also analyzes whether,these di!erences in past-return-based behavior,and,di!erences in investor sophistication drive the perfor- mance,of various investor types. We "nd that foreign investors tend to be momentum invest...

Citations

... Buying a portfolio of a given month and selling at the end is profitable if round-trip transaction costs are less than 60 basis points. The same stocks that have a higher return in a specific month have a lower return in the rest of the year, indicating significant reversals (Keloharju et al., 2021). ...
... This result is consistent with Bertrand et al.'s (2010) findings that female labour market decisions vary with age due to the changing nature of childcare responsibilities. In a study on Swedish executives, Keloharju et al. (2019) report that the gender gap in executive appointments arises in the first five years following the birth of the first child. 5 Since we do not have administrative data about the timing of maternity decisions in our multi-country sample, we use age as a proxy for effort-and labour-supply choices. ...
... Most of the early academic publications on wash trading in financial markets focused on colluding investor behaviour (e.g. [11]). Cao et al. [10] were among the first to analyse wash trading by specifying trading patterns. ...
... In summary, our tests reveal very limited evidence of a link between macroeconomic risk and global return factors. 23 Keloharju, Linnainmaa and Nyberg (2018) show that return seasonality in stocks is balanced by seasonal reversals: ...
... Top executives (especially CEOs) require both problemsolving and interpersonal abilities to make decisions and implement them in complex organizational situations (Scholefield, 1974), whose trait scores are higher in cognitive ability, especially non-cognitive ability (Adams et al., 2018), and who are also outstanding in general ability and execution skills, have more charisma and are more strategic (Kaplan et al., 2012;Kaplan and Sorensen, 2021). Since the novel measure of managerial ability was introduced by Demerjian et al. (2012), managerial ability, as an unobservable characteristic of CEOs, has been extensively studied. ...
... However, to discover the entrepreneurial opportunities, Shane and Venkataraman (2000) and Corbett (2007) asserted that it requires entrepreneurs to possess both prior knowledge and cognitive abilities so that they can value and exploit opportunities in the entrepreneurial economy. The capability of individuals is important to understand risk and informed decisionmaking in business and financial activity (Fang et al., 2008;Grinblatt et al., 2015;Sabri & Zakaria, 2015). This suggests that cognitively, competent people are potentially more successful entrepreneurs. ...
... Third, we add to the research on the cross-sectional predictability of country-level equity risk premiums. Previous studies documented a variety of different variables explaining the cross-sectional variation in equity index returns, including value (Kim, 2012;Angelidis and Tessaromatis, 2017;Ellahie et al., 2020), momentum (Balvers and Wu, 2006;Bhojraj and Swaminathan, 2006), size (Keppler and Traub, 1993;Li and Pritamani, 2015;Fisher et al., 2017), beta (Frazzini and Pedersen, 2014), idiosyncratic risk (Bali and Cakici, 2010;Umutlu, 2015;Umutlu, 2019), seasonality (Keloharju et al., 2016), skewness, (Harvey, 2000;Baltas and Salinas, 2019), and long-term reversal (Balvers et al., 2000;Malin and Bornholt, 2013). We show that changes in geopolitical risk also provide incremental and independent information about future cross-sectional returns. ...
... At the level of interpretation, the decrease in confidence with forecast extremity connects with studies suggesting that private investors tend for contrarian trading (e.g., Grinblatt and Keloharju, 2000;Baltzer et al., 2019) and institutional investors benefit from momentum or feedback trading on the expense of private investors (Grinblat and Han, 2005;Barber et al., 2009;Economou et al., 2022). The results also relate to the literature on overconfidence and trading (Glaser and Weber, 2007;Ben-David et al., 2013). ...
... We (2011) and Grinblatt et al. (2015) use the data on cognitive abilities in finance research and discuss in detail the incentives test takers have to put effect into answering the questions. ...
... For family firm reputation, we considered six variables that have been shown to affect family firm reputation, namely, the percentage of board seats held and the percentage of shares owned by the family (indicating control over the business, and a higher commitment to preserving family firm reputation; see Bingham, Dyer, Smith, & Adams, 2011;Garcia-Meca & Palacio, 2018;Pedersen & Thomsen, 2003;Poutziouris, Savva, & Hadjielias, 2015;Zellweger, Nason, Nordqvist, & Brush, 2011); the absence/presence of patronymic name (see Binz-Astrachan, 2014;Kashmiri & Mahajan, 2010, Olivars-Delgado, Pinillos-Laffón & Bennloch-Osuna, 2016Sageder et al., 2016); the age of the firm (see Ali et al., 2015;Tracey, 2014), and number of employees (Cravens & Oliver, 2006). We also used the respondent rating of their brand familiarity (2013, Akhter & Ahmed, 2013;Aspara, 2009;Ali et al., 2015;De Vries, Erasmus, & Gerber, 2017;Frieder & Subrahmanyam, 2003;Keloharju et al., 2010, 2012, McCorkindale, 2008Schoenbachler, Gordon, & Aurand, 2004;Tat Keh & Xie, 2009). ...