Publication Date

2017-04-13

Availability

Open access

Embargo Period

2017-04-13

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PHD)

Department

Finance (Business)

Date of Defense

2017-03-27

First Committee Member

Henrik Cronqvist

Second Committee Member

George M. Korniotis

Third Committee Member

Indraneel Chakraborty

Fourth Committee Member

Jawad M. Addoum

Abstract

My dissertation examines economic determinants of household financial decisions and investor behaviors. It contains three essays. The first essay investigates whether gender norms shape intra-household financial decision making. Analyzing microdata covering more than 30 million U.S. households, I document that families with a financially sophisticated husband are more likely to participate in the stock market than those with a wife of equal financial sophistication. Consistent with the gender norm hypothesis, the baseline effect is attenuated among individuals brought up by working mothers, but becomes stronger among descendants of pre-industrial societies in which women specialized in activities within the home and households with a husband born and raised in a southern state. A randomized controlled experiment further reveals that female identity hinders idea contribution by the wife. In contrast, male identity causes men to be less open to an opposing viewpoint of their wife, even if her proposition in optimal. These things suggest that gender identity norms can have real consequences for household financial well-being. The second essay explores the impact of local agglomeration economies on stock market participation. We find that when the industry in which individuals work is locally agglomerated, they are more likely to participate in the stock market. Further, we show that this relationship is especially strong among skilled workers. We find that the local agglomeration effect is not explained by risk tolerance, worker inertia, or a preference for stocks of firms that are in the same industry as the worker. Instead, our findings are consistent with local agglomeration enhancing human capital and in turn, raising workers' optimal allocations to risky assets. More generally, our analysis underscores the role of geography in shaping human capital and household financial decisions. The third essay examines whether momentum in stock prices is induced by changes in the political environment. We find that momentum profits are concentrated among politically sensitive firms and industries. A trading strategy with a long position in winner portfolios that are politically unfavored and a short position in losers that are politically favored eliminates all momentum profits. Further, our political sensitivity based factor explains 25% (40%) of monthly stock (industry) momentum alphas. Collectively, our results suggest that investor underreaction to political information generates momentum in stock and industry returns.

Keywords

intra-household finance; gender norms; local agglomeration; price momentum

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