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Investment in Financial Information and Portfolio Performance

Author

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  • Luigi Guiso

    (EIEF and CEPR)

  • Tullio Jappelli

    (University of Naples Federico II, CSEF and CEPR)

Abstract

Rational investors perceive correctly the value of financial information. Investment in information is therefore associated with higher expected portfolio returns and Sharpe ratio. Overconfident investors overstate the quality of their own information, and thus investment in information is associated with a lower expected Sharpe ratio despite they realize higher average returns. We contrast the implications of these two models using two unique surveys of customers of a leading Italian bank with portfolio data and measures of financial information. We find that the investment in information is positively associated with returns to financial wealth and negatively to Sharpe ratio. The latter falls with proxies for overconfidence. We relate these findings to the wealth inequality debate.

Suggested Citation

  • Luigi Guiso & Tullio Jappelli, 2018. "Investment in Financial Information and Portfolio Performance," EIEF Working Papers Series 1807, Einaudi Institute for Economics and Finance (EIEF), revised Jun 2018.
  • Handle: RePEc:eie:wpaper:1807
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    1. Zinman, Jonathan, 2009. "Debit or credit?," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 358-366, February.

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    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G1 - Financial Economics - - General Financial Markets

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