Appetite for Information in Mandatory Profiling of Individual Investors

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Financial knowledge and the investment in information of retail investors have been under scrutiny both on the side of regulators and of academics. Actually, increasing financial literacy of individuals is one of the promising avenues in order to increase financial markets participation. In this paper, we use a natural field experiment offered by MiFID questionnaires to test whether retail investors of a European online brokerage house exhibit different trading behaviors when they ask for supplementary information. Under a random matching procedure that controls for socio-demographics, financial experience, education and various survey answers, we analyze the trading characteristics of investors who only differ from others on the side of their "appetite for information". We find that these investors who voluntary ask for more financial information and reveal de facto a particular personality trait tend to behave more like "high quality investors". Actually, they trade on a larger stock universe, execute less daytrades, are better diversified, and are more active on "complex" instruments. They in fine earn higher returns.

Author(s):

Anthony Bellofatto    
Université catholique Louvain
Belgium

Marie-Hélène Broihanne    
EM Strasbourg
France