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Who lost the most? Financial Literacy, Cognitive Abilities, and the Financial Crisis

  • Tabea Bucher-Koenen


  • Michael Ziegelmeyer


We study how and to what extent private households are affected by the recent financial crisis and how their financial decisions are inuenced by this shock. Our analysis reveals that individuals with low levels of financial literacy are less likely to have invested in the stock market and thus are less likely to report losses in wealth. Yet, individuals with low financial literacy are more likely to sell their assets which lost in value (realize losses). This reaction to short-term losses has potential longterm consequences if individuals do not participate in markets' recovery and face lower returns in the long run.

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Paper provided by Central Bank of Luxembourg in its series BCL working papers with number 54.

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Length: 42 pages
Date of creation: Feb 2011
Date of revision:
Publication status: forthcoming as: "Once burned, twice shy? Financial literacy and wealth losses during the financial crisis?, Review of Finance, forthcoming
Handle: RePEc:bcl:bclwop:bclwp054
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