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Optimal financial education

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  • Subrahmanyam, Avanidhar

Abstract

When agents first invest in financial markets, they are relatively inexperienced. The agents best positioned to educate the inexperienced stand to earn trading profits at the expense of inexperienced agents. Owing to this phenomenon, we show that the equilibrium amount of financial education does not fully correct the biases of the inexperienced agents. In a dynamic setting, large levels of uninformed trading volume may be generated by the inexperienced agents. This is because, in equilibrium, the experienced intermediaries may delay educating the inexperienced in order to earn commissions in earlier rounds of trade.

Suggested Citation

  • Subrahmanyam, Avanidhar, 2009. "Optimal financial education," Review of Financial Economics, Elsevier, vol. 18(1), pages 1-9, January.
  • Handle: RePEc:eee:revfin:v:18:y:2009:i:1:p:1-9
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    References listed on IDEAS

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    Cited by:

    1. Margaria Abreu & Victor Mendes, 2017. "The Investor in Structured Retail Products: Marketing Driven or Gambling Oriented?," Working Papers Department of Economics 2017/19, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    2. Anderson, Robert D.J. & Ashton, John K. & Hudson, Robert S., 2014. "The influence of product age on pricing decisions: An examination of bank deposit interest rate setting," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 31(C), pages 216-230.
    3. Victor Mendes & Margarida Abreu, 2014. "The Investor in Structured Retail Products: Marketing Driven or Gambling Oriented?," EcoMod2014 6621, EcoMod.
    4. Margarida Abreu & Victor Mendes, 2017. "The Investor in Structured Retail Products: Marketing Driven or Gambling Oriented?," Working Papers REM 2017/14, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.

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    Keywords

    Information Market efficiency;

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