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Financial Literacy, "Don't Know" Replies and Investor's Trading Behavior

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Abstract

The inclination to guess rather than to admit a lack of knowledge by responding "Don't know" can explain why investors fail the surveys intended to assess their financial competence. Using MiFID test answers and trading data, we investigate whether investors who admit their ignorance and select the "Don't know" answers trade less, a!ord lower transaction costs, and achieve better (net) returns than investors who prefer to guess and select the wrong answers. Additionally, we show that among investors who fill in the MiFID test multiple times, those who select the "Don't know" answers trade less, pay lower transaction costs and perform better than the guesser investors.

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  • M. Tedde, 2026. "Financial Literacy, "Don't Know" Replies and Investor's Trading Behavior," Working Paper CRENoS 202601, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    • Handle: RePEc:cns:cnscwp:202601
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