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Protecting investors from themselves: Evidence from a regulatory intervention

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  • Firth, Chris

Abstract

Retail investors tend to make poor investment decisions and consequently under-perform. A plausible approach to improving this situation is to restrict the least knowledgeable or experienced investors, a concept implemented for Singapore investors via a Customer Knowledge Assessment (CKA). I study the empirical relationship between retail investors’ investment portfolio outcomes, and their CKA results. Although those satisfying the assessment criteria made fewer mistakes, as benchmarked by a selection of normative models, the CKA only weakly identifies less skilled investors. The high misclassification rate, under an analysis favorable to the scheme, highlights the challenges of investor screening.

Suggested Citation

  • Firth, Chris, 2020. "Protecting investors from themselves: Evidence from a regulatory intervention," Journal of Behavioral and Experimental Finance, Elsevier, vol. 27(C).
    • Handle: RePEc:eee:beexfi:v:27:y:2020:i:c:s2214635019302576
    DOI: 10.1016/j.jbef.2020.100329
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    Cited by:

    1. Jiří Šindelář & Petr Budinský, 2024. "Hidden Consequences of Consumer Protection on the Financial Market: Regulation-introduced Bias," Prague Economic Papers, Prague University of Economics and Business, vol. 2024(3), pages 277-318.

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    More about this item

    Keywords

    Singapore CKA; Financial literacy; Regulatory intervention; Investment decisions; Consumer protection; Financial mistakes;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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