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Improving Index Mutual Fund Risk Perception: Increase Financial Literacy or Communicate Better?
Author(s) -
de Goeij Peter,
Van Campenhout Geert,
Subotič Marjana
Publication year - 2017
Publication title -
economic notes
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.274
H-Index - 19
eISSN - 1468-0300
pISSN - 0391-5026
DOI - 10.1111/ecno.12112
Subject(s) - financial literacy , index (typography) , business , representation (politics) , perception , risk perception , affect (linguistics) , literacy , mutual fund , actuarial science , finance , institutional investor , accounting , economics , psychology , computer science , political science , corporate governance , communication , neuroscience , politics , world wide web , law , economic growth
We investigate the effect of financial literacy and index mutual fund risk disclosure format on investors’ risk perception by examining the risk disclosure part in the Key Investor Information Document (KIID) for UCITS funds in Europe. Using an experimental survey administered to 244 university students we find that both financial literacy and the KIID risk representation affect investors’ risk level perception accuracy. In addition, we find indications that financial literacy is less important if the complexity of the risk decision framework is reduced, although in our samle this effect is weak. Our results indicate that as an alternative to efforts taken to stimulate financial literacy, policy makers can effectively impact investors’ risk assessment by presenting a risk indicator that simplifies the decision framework for all investors, irrespective of their level of financial literacy.