The causal effect of local product market shocks on equity holdings: Evidence from the airline industry

Abstract We examine how local product market shocks impact investors' willingness to own and trade the underlying stock. Using US airlines as our test setting, we exploit plausibly exogenous variation in flight routes. We find that active traders increase their ownership by 10.6% in response to a one standard deviation increase in the airline's local market share supply. The effects occur within a year of the shock and are positively related to measures of customer satisfaction. The evidence is most consistent with the view that investment decisions are based on both familiarity and investors' perception of product quality.