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Financial Literacy and Portfolio Dynamics
Author(s) -
BIANCHI MILO
Publication year - 2018
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12605
Subject(s) - portfolio , financial literacy , dynamics (music) , panel data , panel study of income dynamics , control (management) , business , economics , literacy , finance , actuarial science , financial economics , econometrics , demographic economics , economic growth , psychology , management , pedagogy
We match administrative panel data on portfolio choices with survey measures of financial literacy. When we control for portfolio risk, the most literate households experience 0.4% higher annual returns than the least literate households. Distinct portfolio dynamics are the key determinant of this difference. More literate households hold riskier positions when expected returns are higher, they more actively rebalance their portfolios and do so in a way that holds their risk exposure relatively constant over time, and they are more likely to buy assets that provide higher returns than the assets that they sell.