Investment in Financial Information and Portfolio Performance

Luigi Guiso and Tullio Jappelli ()

Economica, 2020, vol. 87, issue 348, 1133-1170

Abstract: Financial information allows investors to condition the portfolio allocation on valuable signals on asset returns. Therefore investors have incentives to spend on information gathering. If interpreted correctly, information signals allow investors to obtain higher returns and more efficient portfolios. Since information is costly, wealthier and more risk tolerant investors have stronger incentives to invest in information. Overconfident investors who overstate the value of the information still obtain higher average returns but end up with less efficient portfolios. We study these implications using two unique surveys of customers of a leading Italian bank, with portfolio data and measures of individual investment in financial information. We find that investment in information is positively associated with returns to financial wealth and negatively associated with the portfolio Sharpe ratio. Furthermore, the latter falls with proxies of overconfidence. We relate these findings to the wealth inequality debate.

Date: 2020
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Citations: View citations in EconPapers (2)

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https://doi.org/10.1111/ecca.12338

Related works:
Working Paper: Investment in Financial Information and Portfolio Performance (2018)
Working Paper: Investment in Financial Information and Portfolio Performance (2018)
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