Portfolio Choice and Knowledge
AbstractThis paper investigates whether individual-specific costs and incentives to search for information on financial assets affect the individuals' willingness to hold risky and illiquid assets. The study presents a MIMIC model of asset holdings and financial knowledge that explicitly accounts for the endogeneity of financial knowledge and asset choice. Reducing various ill-measured proxy variables of the individuals' information status to one latent common factor denoted as 'financial knowledge', factor-analytic methods are employed to obtain a more reliable measure of the individuals' information status. The study introduces a two-sample simulated maximum likelihood estimator that uses matching techniques to overcome the respective deficiencies of two German savings surveys which contain partly overlapping information on individual asset holdings and socioeconomic characteristics. Monte Carlo simulation results confirm that this estimation technique allows to obtain unbiased estimates of the coefficients of predetermined and endogenous explanatory variables. The estimation results show that persons who have access to inexpensive financial information by means of vocational training, the expertise of family and friends, and technical equipment and the internet, are better informed about financial matters than others for whom financial information is costly. They are also most likely to hold 'complex assets', such as stocks and bonds and are particularly open to financial risk. The paper concludes that low-cost information campaigns, reinforced by social network effects, could be effective measures to permanently increase the willingness to hold risky assets among German households.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 00-51.
Length: 61 pages
Date of creation: 00 0000
Date of revision:
Note: Research in this paper is related to Sonderforschungsbereich 504 at University of Mannheim and the TMR research network
Contact details of provider:
Postal: D-68131 Mannheim
Phone: (49) (0) 621-292-2547
Fax: (49) (0) 621-292-5594
Web page: http://www.sfb504.uni-mannheim.de/
More information through EDIRC
Web page: http://www.sfb504.uni-mannheim.de
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carsten Schmidt).
If references are entirely missing, you can add them using this form.