FINANCE


Industry Clusters and the Geography of Portfolio Choice Journal of Financial and Quantitative Analysis 59, 3, May 2024 LINK TO PAPER LINK TO JAWAD ADDOUM VIDEO


JAWAD M. ADDOUM ASSOCIATE PROFESSOR Charles H. Dyson School


of Applied Economics and Management Cornell SC Johnson College of Business Cornell University


Co-authors • Jawad Addoum Associate Professor, Charles H. Dyson School of Applied


Research and Management, Cornell SC Johnson College of Business, Cornell University


• Stefanos Delikouras, Miami Herbert Business School, University of Miami, Florida • Da Ke, Darla Moore School of Business, University of South Carolina • George M. Korniotis, Miami Herbert Business School, University of Miami, Florida


Summary Households’ financial portfolios exhibit immense heterogeneity, with some


households placing oversized bets on a single stock while others avoiding financial markets completely, even among twins born and raised together. Such heterogeneity has important implications for household welfare and the evolution of wealth inequality. Despite many significant contributions in the literature, the substantial variation in household investment decisions is far from fully understood.


Using detailed data on U.S. households’ locations, employment, and financial portfolios, the authors document that individuals employed in locally clus- tered industries are more likely to invest in risky assets. Tis pattern is stron- gest among individuals with high labor income, employed in skilled occupa- tions, and with strong cognitive skills.


Overall, the authors’ evidence suggests the relation between industry clusters and investment decisions is best explained by clusters enhancing human capital among local industry workers, in turn amplifying their effective risk tolerance. Tese findings highlight the important role of local labor market composition in generating household portfolio patterns within and across geographies.


CONTENTS TO MAIN


| RESEARCH WITH IMPACT: CORNELL SC JOHNSON COLLEGE OF BUSINESS • 2024 EDITION


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