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Financial Literacy and Portfolio Dynamics

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  • MILO BIANCHI

Abstract

We match administrative panel data on portfolio choices with survey measures of financial literacy. When we control for portfolio risk, the most literate households experience 0.4% higher annual returns than the least literate households. Distinct portfolio dynamics are the key determinant of this difference. More literate households hold riskier positions when expected returns are higher, they more actively rebalance their portfolios and do so in a way that holds their risk exposure relatively constant over time, and they are more likely to buy assets that provide higher returns than the assets that they sell.

Suggested Citation

  • Milo Bianchi, 2018. "Financial Literacy and Portfolio Dynamics," Journal of Finance, American Finance Association, vol. 73(2), pages 831-859, April.
  • Handle: RePEc:bla:jfinan:v:73:y:2018:i:2:p:831-859
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    File URL: https://doi.org/10.1111/jofi.12605
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    Cited by:

    1. Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2016. "Heterogeneity and Persistence in Returns to Wealth," EIEF Working Papers Series 1615, Einaudi Institute for Economics and Finance (EIEF), revised Nov 2016.
    2. Adam Farago & Martin Holmén & Felix Holzmeister & Michael Kirchler & Michael Razen, 2019. "Cognitive Skills and Economic Preferences in the Fund Industry," Working Papers 2019-16, Faculty of Economics and Statistics, University of Innsbruck.
    3. repec:cai:finpug:fina_392_0043 is not listed on IDEAS
    4. Nicolas Aubert & Niaz Kammoun & Yacine Bekrar, 2018. "Financial decisions of the financially literate," Finance, Presses universitaires de Grenoble, vol. 39(2), pages 43-91.
    5. Noemi Oggero & Maria Cristina Rossi & Elisa Ughetto, 2019. "Entrepreneurial Spirits in Women and Men. The Role of Financial Literacy and Digital Skills," Working papers 059, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.

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