IDEAS home Printed from https://ideas.repec.org/p/chf/rpseri/rp2327.html
   My bibliography  Save this paper

FinTech, Investor Sophistication and Financial Portfolio Choices

Author

Listed:
  • Leonardo Gambacorta

    (Bank for International Settlements (BIS); Centre for Economic Policy Research (CEPR))

  • Romina Gambacorta

    (Bank of Italy)

  • Roxana Mihet

    (Swiss Finance Institute - HEC Lausanne)

Abstract

This paper analyses the links between advances in financial technology, investors’ sophistication, and the composition and returns of their financial portfolios. We develop a simple portfolio choice model under asymmetric information and derive some theoretical predictions. Using detailed microdata from Banca d’Italia, we test these predictions for Italian households over the period 2004- 20. In general, heterogeneity in portfolio composition and in returns between sophisticated and unsophisticated investors grows with improvements in financial technology. This heterogeneity is reduced only if financial technology is accessible to everyone and if investors have a similar capacity to use it.

Suggested Citation

  • Leonardo Gambacorta & Romina Gambacorta & Roxana Mihet, 2023. "FinTech, Investor Sophistication and Financial Portfolio Choices," Swiss Finance Institute Research Paper Series 23-27, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2327
    as

    Download full text from publisher

    File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4428772
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Paul A. Gompers & Andrew Metrick, 2001. "Institutional Investors and Equity Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 229-259.
    2. Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2020. "Heterogeneity and Persistence in Returns to Wealth," Econometrica, Econometric Society, vol. 88(1), pages 115-170, January.
    3. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
    4. John Y. Campbell & Tarun Ramadorai & Benjamin Ranish, 2019. "Do the Rich Get Richer in the Stock Market? Evidence from India," American Economic Review: Insights, American Economic Association, vol. 1(2), pages 225-240, September.
    5. Pierre‐André Chiappori & Monica Paiella, 2011. "Relative Risk Aversion Is Constant: Evidence From Panel Data," Journal of the European Economic Association, European Economic Association, vol. 9(6), pages 1021-1052, December.
    6. Stijn Van Nieuwerburgh & Laura Veldkamp, 2009. "Information Immobility and the Home Bias Puzzle," Journal of Finance, American Finance Association, vol. 64(3), pages 1187-1215, June.
    7. Florence Jaumotte & Subir Lall & Chris Papageorgiou, 2013. "Rising Income Inequality: Technology, or Trade and Financial Globalization?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(2), pages 271-309, June.
    8. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, April.
    9. Brunnermeier, Markus K., 2001. "Asset Pricing under Asymmetric Information: Bubbles, Crashes, Technical Analysis, and Herding," OUP Catalogue, Oxford University Press, number 9780198296980.
    10. Edward N. Wolff, 2014. "Household Wealth Trends in the United States, 1962-2013: What Happened over the Great Recession?," NBER Working Papers 20733, National Bureau of Economic Research, Inc.
    11. Joël Peress, 2004. "Wealth, Information Acquisition, and Portfolio Choice," The Review of Financial Studies, Society for Financial Studies, vol. 17(3), pages 879-914.
    12. Frost, Jon & Gambacorta, Leonardo & Gambacorta, Romina, 2022. "On the nexus between wealth inequality, financial development and financial technology," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 429-451.
    13. Lancaster, Tony, 2000. "The incidental parameter problem since 1948," Journal of Econometrics, Elsevier, vol. 95(2), pages 391-413, April.
    Full references (including those not matched with items on IDEAS)

    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. 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.
    2. Kacperczyk, Marcin & Nosal, Jaromir & Stevens, Luminita, 2019. "Investor sophistication and capital income inequality," Journal of Monetary Economics, Elsevier, vol. 107(C), pages 18-31.
    3. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    4. Carpio, Ronaldo & Guo, Meixin & Liu, Yuan & Pyun, Ju Hyun, 2021. "Wealth heterogeneity, information acquisition and equity home bias: Evidence from U.S. household surveys of consumer finance," Journal of Banking & Finance, Elsevier, vol. 126(C).
    5. Frost, Jon & Gambacorta, Leonardo & Gambacorta, Romina, 2022. "On the nexus between wealth inequality, financial development and financial technology," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 429-451.
    6. John Y. Campbell & Tarun Ramadorai & Benjamin Ranish, 2019. "Do the Rich Get Richer in the Stock Market? Evidence from India," American Economic Review: Insights, American Economic Association, vol. 1(2), pages 225-240, September.
    7. Gambacorta, Leonardo & Frost, Jon & Gambacorta, Romina, 2020. "The Matthew effect and modern finance: on the nexus between wealth inequality, financial development and financial technology," CEPR Discussion Papers 15014, C.E.P.R. Discussion Papers.
    8. Bui, Dien Giau & Hasan, Iftekhar & Lin, Chih-Yung & Zhai, Rui-Xiang, 2022. "Income, trading, and performance: Evidence from retail investors," Journal of Empirical Finance, Elsevier, vol. 66(C), pages 176-195.
    9. Laurens Cherchye & Bram De Rock & Dieter Saelens, 2024. "Nonparametric analysis of financial portfolio performance," Working Papers ECARES 2024-08, ULB -- Universite Libre de Bruxelles.
    10. Altmejd, Adam & Jansson, Thomas & Karabulut, Yigitcan, 2024. "Business Education and Portfolio Returns," IZA Discussion Papers 16976, Institute of Labor Economics (IZA).
    11. Cai, Fang & Warnock, Francis E., 2012. "Foreign exposure through domestic equities," Finance Research Letters, Elsevier, vol. 9(1), pages 8-20.
    12. John Y. Campbell, 2016. "Restoring Rational Choice: The Challenge of Consumer Financial Regulation," American Economic Review, American Economic Association, vol. 106(5), pages 1-30, May.
    13. Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2020. "Heterogeneity and Persistence in Returns to Wealth," Econometrica, Econometric Society, vol. 88(1), pages 115-170, January.
    14. Caruso Raul & Antonella Biscione, 2022. "Militarization and Income Inequality in European Countries (2000–2017)," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 28(3), pages 267-285, September.
    15. Thanos Fragkandreas, 2022. "Three Decades of Research on Innovation and Inequality: Causal Scenarios, Explanatory Factors, and Suggestions," Working Papers 60, Birkbeck Centre for Innovation Management Research, revised Feb 2022.
    16. Kenneth Yung & Yen-Chih Liu, 2009. "Implications of futures trading volume: Hedgers versus speculators," Journal of Asset Management, Palgrave Macmillan, vol. 10(5), pages 318-337, December.
    17. Laurent E. Calvet & Paolo Sodini, 2014. "Twin Picks: Disentangling the Determinants of Risk-Taking in Household Portfolios," Journal of Finance, American Finance Association, vol. 69(2), pages 867-906, April.
    18. An, Li & Lou, Dong & Shi, Donghui, 2022. "Wealth redistribution in bubbles and crashes," Journal of Monetary Economics, Elsevier, vol. 126(C), pages 134-153.
    19. Herradi, Mehdi El & Leroy, Aurélien, 2022. "The rich, poor, and middle class: Banking crises and income distribution," Journal of International Money and Finance, Elsevier, vol. 127(C).
    20. Bing Han & Liyan Yang, 2013. "Social Networks, Information Acquisition, and Asset Prices," Management Science, INFORMS, vol. 59(6), pages 1444-1457, June.

    More about this item

    Keywords

    Inequality; Inclusion; FinTech; Innovation; Matthew Effect.;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G5 - Financial Economics - - Household Finance
    • G4 - Financial Economics - - Behavioral Finance
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L8 - Industrial Organization - - Industry Studies: Services
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:chf:rpseri:rp2327. 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: Ridima Mittal (email available below). General contact details of provider: https://edirc.repec.org/data/fameech.html .

    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.