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Financial literacy and retail investors' financial welfare: Evidence from mutual fund investment outcomes in China

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  • Jiang, Jinglin
  • Liao, Li
  • Wang, Zhengwei
  • Xiang, Hongyu

Abstract

This paper examines the financial literacy of mutual fund retail investors and its relationship with their investment outcomes. Using a unique dataset on Chinese mutual fund retail investors containing a survey on financial literacy, we find that women display significantly lower financial literacy than men. Investors with a higher level of education and richer investment experience have higher financial literacy. A one-standard-deviation increase in advanced financial literacy is associated with a probability decrease of an individual investor suffering a major loss by 1.940 percentage points, >13% of the sample average. Highly literate investors also show more sophistication concerning fee-related issues: they are more likely to be aware of investment charges, to avoid high-fee funds sold by intermediaries, and to trade less. Moreover, we find that advanced literacy has a significantly larger impact on investment performance than basic literacy. These results can be helpful to the policy debate on the effects of financial education.

Suggested Citation

  • Jiang, Jinglin & Liao, Li & Wang, Zhengwei & Xiang, Hongyu, 2020. "Financial literacy and retail investors' financial welfare: Evidence from mutual fund investment outcomes in China," Pacific-Basin Finance Journal, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:pacfin:v:59:y:2020:i:c:s0927538x18305511
    DOI: 10.1016/j.pacfin.2019.101242
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    Cited by:

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    2. Chen, Haiyang & Dai, Ya & Guo, David, 2023. "Financial literacy as a determinant of market participation: New evidence from China using IV-GMM," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 611-623.
    3. Yanna He & Muzaffarjon Ahunov, 2022. "Financial Literacy: The Case of China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 30(5), pages 75-101, September.
    4. Noviarini, Jelita & Coleman, Andrew & Roberts, Helen & Whiting, Rosalind H., 2021. "Financial literacy, debt, risk tolerance and retirement preparedness: Evidence from New Zealand," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    5. Lu, Shuai & Li, Shouwei, 2023. "Is institutional herding efficient? Evidence from an investment efficiency and informational network perspective," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    6. Korkmaz, Aslihan Gizem & Yin, Zhichao & Yue, Pengpeng & Zhou, Haigang, 2021. "Does financial literacy alleviate risk attitude and risk behavior inconsistency?," International Review of Economics & Finance, Elsevier, vol. 74(C), pages 293-310.
    7. Yuanyuan Guo & Can Liu & Hao Liu & Ke Chen & Dan He, 2023. "Financial Literacy, Borrowing Behavior and Rural Households’ Income: Evidence from the Collective Forest Area, China," Sustainability, MDPI, vol. 15(2), pages 1-21, January.
    8. Gerrans, Paul, 2021. "Undergraduate student financial education interventions: Medium term evidence of retention, decay, and confidence in financial literacy," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    9. Yang, Junhong & Wu, Yu & Huang, Bihong, 2020. "Digital Finance and Financial Literacy: An Empirical Investigation of Chinese Households," ADBI Working Papers 1209, Asian Development Bank Institute.
    10. Li, Jianjun & Li, Qize & Wei, Xu, 2020. "Financial literacy, household portfolio choice and investment return," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).

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    More about this item

    Keywords

    Financial literacy; Mutual fund investment; Investment fees; Retail investors;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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