Subjective financial literacy and retail investors’ behavior

Bellofatto, Anthony; D’Hondt, Catherine; Winne, Rudy De

doi:10.1016/j.jbankfin.2018.05.004

Cited by 85 publications

(94 citation statements)

References 37 publications

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“…Subjective financial knowledge is nevertheless one of the most significant factors in determining the way people invest (Courchane and Zorn (2005)). Most interestingly, Bellofatto et al (2018) find that investors who report higher levels of subjective financial literacy seem to invest in a smarter way, displaying higher gross and net returns as well as higher excess Sharpe ratios. They also seem to be less prone to the disposition effect and tend to achieve diversification by investing in funds.…”

Section: Financial Knowledge and Retail Investing In P-etfsmentioning

confidence: 90%

Retail Investing in Passive Exchange Traded Funds

2020

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Using a large set of trading accounts, we study the determinants of retail investing in passive Exchange Traded Funds (P-ETFs). Controlling for investor characteristics related to their risk-return profile, trading activity, and socio-demographics, we show that the probability and magnitude of P-ETF investing by retail investors can be explained by financial knowledge, financial experience, and behavioral biases such as overconfidence and local bias. We also show that the more active P-ETF users hold a lower number of stocks and modify the composition of their stock portfolio less extensively, pointing to a substitution effect between stocks and P-ETFs.

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Section: Financial Knowledge and Retail Investing In P-etfsmentioning

confidence: 90%

Retail Investing in Passive Exchange Traded Funds

2020

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“…Hence, we need to identify a sample of stocks that meet two conditions: (1) each stock has to be traded by these retail investors and (2) the Google SVI must be available for each stock. Based on D'Hondt and Roger (2017) and Bellofatto et al (2018) who use the same database as ours, 10 we know that Belgian retail investors tend to focus most of their trading activity on Belgian, US, French, and Dutch stocks. 11 We target therefore the constituents of the market indices representative of these four countries: BEL20, SBF120…”

Section: Sample Of Stocksmentioning

confidence: 74%

“…Some subjective individual attributes provide valuable insights into investor behavior (Dorn and Huberman (2005); Graham et al (2009)). Focusing on financial literacy, Bellofatto et al (2018) show that self-reported knowledge helps explain cross-sectional variations in retail investors' behavior. 28 Hence, it appears relevant to check whether the relationship between attention and trading activity is affected by such a self-declared literacy.…”

Section: Subjective Investor Characteristicsmentioning

confidence: 99%

Googlization and Retail Investors’ Trading Activity

Desagre

D’Hondt

2019

SSRN Journal

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Building on Barber and Odean (2008), a growing body of papers document a positive relationship between Google Search Volume Index (SVI) and equity market returns. Such findings suggest that increased attention is combined with a buying pressure that subsequently results in positive returns. This relationship has been established at the market level. In this paper, we focus on a sample of retail investors and use SVI to test whether their aggregate (signed) trading activity is related to attention as well. We find that the relationship between SVI and our retail investors' trading activity is positive, even when controlling for some socio-demographics or subjective investor characteristics. However, this relationship is not stronger for purchases than for sales, thereby providing no support for the buying pressure hypothesis. We also document a bi-directional causality between attention and trading activity, although the contemporaneous effects are economically stronger and predominate. Our results are robust to different measures of attention and trading activity.

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“…Their results suggest that investors' low literacy, among other factors, makes inconsistencies more likely. Bellofatto et al (2018) present evidence that subjective financial literacy helps explain cross-sectional differences in retail investors' actions. Investors reporting higher levels of financial literacy appear to invest more intelligently, even after controlling for gender, age, portfolio value, trading experience, and education.…”

Section: Introductionmentioning

confidence: 77%

Who Is Successful in Foreign Exchange Margin Trading? New Survey Evidence from Japan

Hayo

Iwatsubo

2019

SSRN Journal

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We use a 2018 survey of FX margin traders in Japan to investigate which key factors influence their performance: socio-demographic and economic situation, investment strategy and trading behaviour, and/or financial literacy. First, the data show that variables from all three groups are significant predictors of traders' performance. Second, we find that older traders and those without a specific trading strategy demonstrate lower performance. Performance is higher for those who trade greater amounts, rely more on fundamental analysis, and report having profitable FX trade skills. Third, respondents' subjectively stated claim of having FX trade skills is based on a more advanced understanding of FX trading and a reliance on professional advice. Neither objective financial knowledge nor over/underconfidence play a noteworthy role in the performance of margin traders.

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Subjective financial literacy and retail investors’ behavior

Cited by 85 publications

References 37 publications

Retail Investing in Passive Exchange Traded Funds

Retail Investing in Passive Exchange Traded Funds

Googlization and Retail Investors’ Trading Activity

Who Is Successful in Foreign Exchange Margin Trading? New Survey Evidence from Japan

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