IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Financial advice and stock market participation

  • Georgarakos, Dimitris
  • Inderst, Roman

We introduce professional financial advice in households’ choice to hold risky financial assets. Consistent with the predictions from a formal model, we present evidence that households’ trust in financial advice only matters when their perceived own financial capability is low. Instead, for households with higher financial capability, only the perception of legal protection in financial markets matters for stock market participation. Our empirical analysis highlights economically significant differences in households’ perception of their rights as consumers of financial services, even when their objective circumstances should not be much different. JEL Classification: E1, G2, D8

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1296.pdf
Download Restriction: no

Paper provided by European Central Bank in its series Working Paper Series with number 1296.

as
in new window

Length:
Date of creation: Feb 2011
Date of revision:
Handle: RePEc:ecb:ecbwps:20111296
Contact details of provider: Postal:
60640 Frankfurt am Main, Germany

Phone: +49 69 1344 0
Fax: +49 69 1344 6000
Web page: http://www.ecb.europa.eu/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Inderst, Roman & Ottaviani, Marco, 2009. "Misselling through agents," IMFS Working Paper Series 36, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
  2. Philippe Aghion & Yann Algan & Pierre Cahuc & Andrei Shleifer, 2010. "Regulation and Distrust," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1015-1049.
  3. Luigi Guiso & Tullio Jappelli, 2003. "Awareness and Stock Market Participation," CSEF Working Papers 110, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Jun 2004.
  4. Maarten van Rooij & Annamaria Lusardi & Rob Alessie, 2007. "Financial Literacy and Stock Market Participation," NBER Working Papers 13565, National Bureau of Economic Research, Inc.
  5. Bolton, Patrick & Freixas, Xavier & Shapiro, Joel, 2007. "Conflicts of interest, information provision, and competition in the financial services industry," Journal of Financial Economics, Elsevier, vol. 85(2), pages 297-330, August.
  6. Corsetti, Giancarlo & Devereux, Michael P. & Guiso, Luigi & Hassler, John & Saint-Paul, Gilles & Sinn, Hans-Werner & Sturm, Jan-Egbert & Vives, Xavier, 2010. "A trust-driven financial crisis. Implications for the future of financial markets," Munich Reprints in Economics 20109, University of Munich, Department of Economics.
  7. Jappelli, Tullio & Pagano, Marco & Bianco, Magda, 2005. "Courts and Banks: Effects of Judicial Enforcement on Credit Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 223-44, April.
  8. Bruce I. Carlin & Simon Gervais, 2009. "Legal Protection in Retail Financial Markets," NBER Working Papers 14972, National Bureau of Economic Research, Inc.
  9. Campbell, John, 2006. "Household Finance," Scholarly Articles 3157877, Harvard University Department of Economics.
  10. Guiso, Luigi & Jappelli, Tullio, 2000. "Household Portfolios in Italy," CEPR Discussion Papers 2549, C.E.P.R. Discussion Papers.
  11. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2000. "The Role of Social Capital in Financial Development," NBER Working Papers 7563, National Bureau of Economic Research, Inc.
  12. Jeff Dominitz & Charles F. Manski, 2005. "Measuring and Interpreting Expectations of Equity Returns," NBER Working Papers 11313, National Bureau of Economic Research, Inc.
  13. Andreas Hackethal & Michael Haliassos & Tullio Jappelli, 2009. "Financial Advisors: A Case of Babysitters?," CSEF Working Papers 219, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 03 Mar 2011.
  14. Jeffrey Butler & Paola Giuliano & Luigi Guiso, 2009. "The Right Amount of Trust," NBER Working Papers 15344, National Bureau of Economic Research, Inc.
  15. Barras, Laurent & Scaillet, Olivier & Wermers, Russ, 2009. "False discoveries in mutual fund performance: Measuring luck in estimated alphas," CFR Working Papers 06-02, University of Cologne, Centre for Financial Research (CFR).
  16. Campbell, John & Calvet, Lauren E. & Sodini, Paolo, 2009. "Measuring the Financial Sophistication of Households," Scholarly Articles 2618438, Harvard University Department of Economics.
  17. Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, vol. 39(3), pages 347-366, November.
  18. Daniel G. Goldstein & Eric J. Johnson & William F. Sharpe, 2008. "Choosing Outcomes versus Choosing Products: Consumer-Focused Retirement Investment Advice," Journal of Consumer Research, Oxford University Press, vol. 35(3), pages 440-456, 08.
  19. Powell, Melanie & Ansic, David, 1997. "Gender differences in risk behaviour in financial decision-making: An experimental analysis," Journal of Economic Psychology, Elsevier, vol. 18(6), pages 605-628, November.
  20. Christelis, Dimitris & Jappelli, Tullio & Padula, Mario, 2010. "Cognitive abilities and portfolio choice," European Economic Review, Elsevier, vol. 54(1), pages 18-38, January.
  21. repec:use:tkiwps:2323 is not listed on IDEAS
  22. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
  23. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
  24. Ulrike Malmendier & Stefan Nagel, 2009. "Depression Babies: Do Macroeconomic Experiences Affect Risk-Taking?," NBER Working Papers 14813, National Bureau of Economic Research, Inc.
  25. Michael Haliassos and Alexander Michaelides, 2001. "Calibration and Computation of Household Portfolio Models," Computing in Economics and Finance 2001 194, Society for Computational Economics.
  26. Céline Christensen & Peter van Els & Maarten van Rooij, 2006. "Dutch households' perceptions of economic growth and inflation," DNB Working Papers 093, Netherlands Central Bank, Research Department.
  27. Patrick Bolton & Xavier Freixas & Joel Shapiro, 2004. "Conflicts of Interest, Information Provision, and Competition in Banking," NBER Working Papers 10571, National Bureau of Economic Research, Inc.
  28. repec:spo:wpecon:info:hdl:2441/8883 is not listed on IDEAS
  29. Peter Tufano, 2009. "Consumer Finance," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 227-247, November.
  30. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2008. "Trusting the Stock Market," Journal of Finance, American Finance Association, vol. 63(6), pages 2557-2600, December.
  31. Markus Knell & Helmut Stix, 2009. "Trust in Banks? Evidence from normal times and from times of crises," Working Papers 158, Oesterreichische Nationalbank (Austrian Central Bank).
  32. Roman Inderst & Marco Ottaviani, 2010. "Consumer Protection in Markets with Advice," CPI Journal, Competition Policy International, vol. 6.
  33. Jianakoplos, Nancy Ammon & Bernasek, Alexandra, 1998. "Are Women More Risk Averse?," Economic Inquiry, Western Economic Association International, vol. 36(4), pages 620-30, October.
  34. Gur Huberman & Wei Jiang, 2006. "Offering versus Choice in 401(k) Plans: Equity Exposure and Number of Funds," Journal of Finance, American Finance Association, vol. 61(2), pages 763-801, 04.
  35. Paola Sapienza, 2009. "Trust and Financial Markets," World Scientific Book Chapters, in: The First Credit Market Turmoil Of The 21st Century Implications for Public Policy, chapter 4, pages 29-38 World Scientific Publishing Co. Pte. Ltd..
  36. Bogan, Vicki, 2008. "Stock Market Participation and the Internet," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(01), pages 191-211, March.
  37. Harrison Hong & Jeffrey D. Kubik & Jeremy C. Stein, 2001. "Social Interaction and Stock-Market Participation," NBER Working Papers 8358, National Bureau of Economic Research, Inc.
  38. João Cocco & Francisco Gomes & Pascal Maenhout, 1998. "Consumption and Portfolio Choice over the Life-Cycle," Working Papers Department of Economics ces9805, KU Leuven, Faculty of Economics and Business, Department of Economics.
  39. Brad M. Barber & Terrance Odean, 2001. "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 261-292.
  40. Giannetti, Mariassunta & Koskinen, Yrjö, 2010. "Investor Protection, Equity Returns, and Financial Globalization," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 45(01), pages 135-168, February.
  41. Annette Vissing-Jorgensen, 2004. "Perspectives on Behavioral Finance: Does "Irrationality" Disappear with Wealth? Evidence from Expectations and Actions," NBER Chapters, in: NBER Macroeconomics Annual 2003, Volume 18, pages 139-208 National Bureau of Economic Research, Inc.
  42. Daniel Bergstresser & John M. R. Chalmers & Peter Tufano, 2009. "Assessing the Costs and Benefits of Brokers in the Mutual Fund Industry," Review of Financial Studies, Society for Financial Studies, vol. 22(10), pages 4129-4156, October.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20111296. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Official Publications)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.