IDEAS home Printed from https://ideas.repec.org/a/eee/joepsy/v76y2020ics0167487018303696.html
   My bibliography  Save this article

Sources of information and portfolio allocation

Author

Listed:
  • Shin, Su Hyun
  • Kim, Kyoung Tae
  • Seay, Martin

Abstract

This research investigates the relationship between how a household receives financial information and the degree to which investment portfolios are diversified. Diversification is measured as allocation across asset classes and share of assets held in each asset class. Propensity score-based techniques incorporating stratification and weighting are employed to better isolate causal links, while also controlling for objective and subjective financial literacy and overconfidence. Results indicate that the use of financial planners and brokers is associated with an increase in asset class diversification. Households that consult with financial planners and bankers allocate their wealth systematically different from those who do not. These results highlight the role that financial professionals play in helping households make investment decisions.

Suggested Citation

  • Shin, Su Hyun & Kim, Kyoung Tae & Seay, Martin, 2020. "Sources of information and portfolio allocation," Journal of Economic Psychology, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:joepsy:v:76:y:2020:i:c:s0167487018303696
    DOI: 10.1016/j.joep.2019.102212
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167487018303696
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.joep.2019.102212?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. van Rooij, Maarten & Lusardi, Annamaria & Alessie, Rob, 2011. "Financial literacy and stock market participation," Journal of Financial Economics, Elsevier, vol. 101(2), pages 449-472, August.
    2. Annamaria Lusardi & Olivia S. Mitchell, 2008. "Planning and Financial Literacy: How Do Women Fare?," American Economic Review, American Economic Association, vol. 98(2), pages 413-417, May.
    3. Luigi Guiso & Tullio Jappelli, 2006. "Information Acquisition and Portfolio Performance," CeRP Working Papers 52, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    4. Bannier, Christina E. & Schwarz, Milena, 2018. "Gender- and education-related effects of financial literacy and confidence on financial wealth," Journal of Economic Psychology, Elsevier, vol. 67(C), pages 66-86.
    5. Lusardi, Annamaria & Mitchell, Olivia S., 2007. "Baby Boomer retirement security: The roles of planning, financial literacy, and housing wealth," Journal of Monetary Economics, Elsevier, vol. 54(1), pages 205-224, January.
    6. William N. Goetzmann & Alok Kumar, 2008. "Equity Portfolio Diversification," Review of Finance, European Finance Association, vol. 12(3), pages 433-463.
    7. Annamaria Lusardi & Olivia S. Mitchell, 2011. "The Outlook for Financial Literacy," NBER Working Papers 17077, National Bureau of Economic Research, Inc.
    8. Hans-Martin Von Gaudecker, 2015. "How Does Household Portfolio Diversification Vary with Financial Literacy and Financial Advice?," Journal of Finance, American Finance Association, vol. 70(2), pages 489-507, April.
    9. Dimitris Georgarakos & Roman Inderst, 2011. "Financial Advice and Stock Market Participation," BCL working papers 51, Central Bank of Luxembourg.
    10. Mitchell Marsden & Cathleen Zick & Robert Mayer, 2011. "The Value of Seeking Financial Advice," Journal of Family and Economic Issues, Springer, vol. 32(4), pages 625-643, December.
    11. Cliff A. Robb & Patryk Babiarz & Ann Woodyard & Martin C. Seay, 2015. "Bounded Rationality and Use of Alternative Financial Services," Journal of Consumer Affairs, Wiley Blackwell, vol. 49(2), pages 407-435, July.
    12. Marc M. Kramer, 2012. "Financial Advice and Individual Investor Portfolio Performance," Financial Management, Financial Management Association International, vol. 41(2), pages 395-428, June.
    13. Joël Peress, 2004. "Wealth, Information Acquisition, and Portfolio Choice," The Review of Financial Studies, Society for Financial Studies, vol. 17(3), pages 879-914.
    14. Annamaria Lusardi & Olivia S. Mitchell, 2017. "How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 7(03), pages 1-31, September.
    15. Annamaria Lusardi & Olivia S. Mitchell, 2005. "Financial Literacy and Planning: Implications for Retirement Wellbeing," CeRP Working Papers 46, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    16. Hackethal, Andreas & Haliassos, Michael & Jappelli, Tullio, 2012. "Financial advisors: A case of babysitters?," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 509-524.
    17. Hügelschäfer, Sabine & Achtziger, Anja, 2014. "On confident men and rational women: It’s all on your mind(set)," Journal of Economic Psychology, Elsevier, vol. 41(C), pages 31-44.
    18. Luigi Guiso & Tullio Jappelli, 2008. "Financial Literacy and Portfolio Diversification," EIEF Working Papers Series 0812, Einaudi Institute for Economics and Finance (EIEF), revised Oct 2008.
    19. Daniel Hoechle & Stefan Ruenzi & Nic Schaub & Markus Schmid, 2017. "The Impact of Financial Advice on Trade Performance and Behavioral Biases," Review of Finance, European Finance Association, vol. 21(2), pages 871-910.
    20. Shin, Su Hyun & Seay, Martin C. & Kim, Kyong Tae, 2017. "Measurement of diversification between asset classes in the Survey of Consumer Finances," Economics Letters, Elsevier, vol. 156(C), pages 22-26.
    21. Sonsino, Doron & Regev, Eran, 2013. "Informational overconfidence in return prediction – More properties," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 72-84.
    22. Stigler, George J., 2011. "Economics of Information," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 35-49.
    23. Levy, Matthew R. & Tasoff, Joshua, 2017. "Exponential-growth bias and overconfidence," LSE Research Online Documents on Economics 68881, London School of Economics and Political Science, LSE Library.
    24. Shapira, Zur & Venezia, Itzhak, 2001. "Patterns of behavior of professionally managed and independent investors," Journal of Banking & Finance, Elsevier, vol. 25(8), pages 1573-1587, August.
    25. Riccardo Calcagno & Chiara Monticone, 2015. "Financial Literacy and the Demand for Financial Advice," Post-Print hal-02313173, HAL.
    26. Abreu, Margarida & Mendes, Victor, 2012. "Information, overconfidence and trading: Do the sources of information matter?," Journal of Economic Psychology, Elsevier, vol. 33(4), pages 868-881.
    27. Kramer, Marc M., 2016. "Financial literacy, confidence and financial advice seeking," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PA), pages 198-217.
    28. Brad M. Barber & Terrance Odean, 2001. "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 261-292.
    29. Levy, Matthew R. & Tasoff, Joshua, 2017. "Exponential-growth bias and overconfidence," Journal of Economic Psychology, Elsevier, vol. 58(C), pages 1-14.
    30. Daniel Bergstresser & John M. R. Chalmers & Peter Tufano, 2009. "Assessing the Costs and Benefits of Brokers in the Mutual Fund Industry," The Review of Financial Studies, Society for Financial Studies, vol. 22(10), pages 4129-4156, October.
    31. Calcagno, Riccardo & Monticone, Chiara, 2015. "Financial literacy and the demand for financial advice," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 363-380.
    32. Danková, Katarína & Servátka, Maroš, 2019. "Gender robustness of overconfidence and excess entry," Journal of Economic Psychology, Elsevier, vol. 72(C), pages 179-199.
    33. Heger, Stephanie A. & Papageorge, Nicholas W., 2018. "We should totally open a restaurant: How optimism and overconfidence affect beliefs," Journal of Economic Psychology, Elsevier, vol. 67(C), pages 177-190.
    34. Lambert, Jérôme & Bessière, Véronique & N’Goala, Gilles, 2012. "Does expertise influence the impact of overconfidence on judgment, valuation and investment decision?," Journal of Economic Psychology, Elsevier, vol. 33(6), pages 1115-1128.
    35. Mitchell, Olivia S. & Lusardi, Annamaria (ed.), 2011. "Financial Literacy: Implications for Retirement Security and the Financial Marketplace," OUP Catalogue, Oxford University Press, number 9780199696819.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cupák, Andrej & Fessler, Pirmin & Hsu, Joanne W. & Paradowski, Piotr R., 2022. "Investor confidence and high financial literacy jointly shape investments in risky assets," Economic Modelling, Elsevier, vol. 116(C).
    2. Bucciol, Alessandro & Quercia, Simone & Sconti, Alessia, 2021. "Promoting financial literacy among the elderly: Consequences on confidence," Journal of Economic Psychology, Elsevier, vol. 87(C).
    3. Wu, Kun & Li, Yanhong & Cai, Xianjun & Yin, Junming, 2022. "Cognitive ability and household portfolio diversification: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).
    4. Hyungkee Young Baek & David D. Cho, 2022. "Overconfidence and risky investment choices," Economics Bulletin, AccessEcon, vol. 42(4), pages 2267-2278.
    5. Huang, Bin & Wang, Bin & Chen, Zixuan, 2024. "Individual investment adaptations to COVID-19 lockdowns," The North American Journal of Economics and Finance, Elsevier, vol. 70(C).
    6. Mugerman, Yevgeny & Sade, Orly & Winter, Eyal, 2020. "Out-of-pocket vs. out-of-investment in financial advisory fees: Evidence from the lab," Journal of Economic Psychology, Elsevier, vol. 81(C).
    7. Andrej Cupak & Pirmin Fessler & Joanne W. Hsu & Piotr R. Paradowski, 2020. "Confidence, financial literacy and investment in risky assets: Evidence from the Survey of Consumer Finances," Working and Discussion Papers WP 4/2020, Research Department, National Bank of Slovakia.
    8. Sunder, Aman & Palmer, Lance & Chatterjee, Swarn & Goetz, Joseph, 2024. "Benefits of consistent and comprehensive financial advice during the Great Recession," Journal of Behavioral and Experimental Finance, Elsevier, vol. 41(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Oscar A. Stolper & Andreas Walter, 2017. "Financial literacy, financial advice, and financial behavior," Journal of Business Economics, Springer, vol. 87(5), pages 581-643, July.
    2. Lu, Xiaomeng & Zhang, Yong & Zhang, Yixing & Wang, Lin, 2020. "Can investment advisors promote rational investment? Evidence from micro-data in China," Economic Modelling, Elsevier, vol. 86(C), pages 251-263.
    3. Bellofatto, Anthony & Broihanne, Marie-Hélène & D'Hondt, Catherine, 2019. "Appetite for information and trading behavior," LIDAM Discussion Papers LFIN 2019002, Université catholique de Louvain, Louvain Finance (LFIN).
    4. Calcagno, Riccardo & Monticone, Chiara, 2015. "Financial literacy and the demand for financial advice," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 363-380.
    5. Steffen Westermann & Scott J. Niblock & Jennifer L. Harrison & Michael A. Kortt, 2020. "Financial Advice Seeking: A Review of the Barriers and Benefits," Economic Papers, The Economic Society of Australia, vol. 39(4), pages 367-388, December.
    6. Guiso, Luigi & Sodini, Paolo, 2013. "Household Finance: An Emerging Field," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1397-1532, Elsevier.
    7. Reiter-Gavish, Liron & Qadan, Mahmoud & Yagil, Joseph, 2021. "Financial advice: Who Exactly Follows It?," Research in Economics, Elsevier, vol. 75(3), pages 244-258.
    8. Bannier, Christina E. & Schwarz, Milena, 2018. "Gender- and education-related effects of financial literacy and confidence on financial wealth," Journal of Economic Psychology, Elsevier, vol. 67(C), pages 66-86.
    9. Li, Xiao, 2020. "When financial literacy meets textual analysis: A conceptual review," Journal of Behavioral and Experimental Finance, Elsevier, vol. 28(C).
    10. Hsu, Yuan-Lin, 2022. "Financial advice seeking and behavioral bias," Finance Research Letters, Elsevier, vol. 46(PB).
    11. Kramer, Marc M., 2016. "Financial literacy, confidence and financial advice seeking," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PA), pages 198-217.
    12. Pan, Xuefeng & Wu, Weixing & Zhang, Xuyang, 2020. "Is financial advice a cure-all or the icing on the cake for financial literacy? Evidence from financial market participation in China," International Review of Financial Analysis, Elsevier, vol. 69(C).
    13. Daniel Hoechle & Stefan Ruenzi & Nic Schaub & Markus Schmid, 2017. "The Impact of Financial Advice on Trade Performance and Behavioral Biases," Review of Finance, European Finance Association, vol. 21(2), pages 871-910.
    14. Calcagno, Riccardo & Giofré, Maela & Urzì-Brancati, Maria Cesira, 2017. "To trust is good, but to control is better: How investors discipline financial advisors’ activity," Journal of Economic Behavior & Organization, Elsevier, vol. 140(C), pages 287-316.
    15. Ziying Yang & Jie Gao & Du Yu, 2024. "Cognition ability, financial advice seeking, and investment performance: New evidence from China," International Review of Finance, International Review of Finance Ltd., vol. 24(1), pages 53-82, March.
    16. Mustabsar Awais & M. Fahad Laber & Nilofer Rasheed & Aisha Khursheed, 2016. "Impact of Financial Literacy and Investment Experience on Risk Tolerance and Investment Decisions: Empirical Evidence from Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 6(1), pages 73-79.
    17. Baeckström, Ylva & Marsh, Ian W. & Silvester, Joanne, 2021. "Variations in investment advice provision: A study of financial advisors of millionaire investors," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 716-735.
    18. Baeckström, Ylva & Marsh, Ian W. & Silvester, Joanne, 2021. "Financial advice and gender: Wealthy individual investors in the UK," Journal of Corporate Finance, Elsevier, vol. 71(C).
    19. Chalmers, John & Reuter, Jonathan, 2020. "Is conflicted investment advice better than no advice?," Journal of Financial Economics, Elsevier, vol. 138(2), pages 366-387.
    20. Feng, Xiangnan & Lu, Bin & Song, Xinyuan & Ma, Shuang, 2019. "Financial literacy and household finances: A Bayesian two-part latent variable modeling approach," Journal of Empirical Finance, Elsevier, vol. 51(C), pages 119-137.

    More about this item

    Keywords

    Information; Diversification; Financial advisor; Financial literacy; Overconfidence;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:joepsy:v:76:y:2020:i:c:s0167487018303696. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/joep .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.