10. Portfolio Rebalancing by Individual Investors

In this chapter, we replicate the study of the rebalancing of mutual funds’ equity portfolios by Giannetti and Laeven (2016) on individual investors in Sweden. The authors find that mutual fund managers rebalance their equity portfolios, during time periods of high market volatility, by selling relatively fewer equities of local firms than of remote firms. We revise these results by examining whether aggregate uncertainty (defined as systematic risk factors) in the Swedish equity market leads individual investors to rebalance their equity portfolios toward local firms. Our results are consistent with the evidence from mutual fund investors shown in Giannetti and Laeven (2016). We contribute to their findings by documenting that the individual investors directly owning equities also exhibit such behavior and the results are stronger in urban regions.