The effect of financial literacy on long-term recognition and short-term trade in mutual funds: Evidence from Japan

Hiroyuki Aman, Taizo Motonishi, Kazuhito Ogawa and Kozo Omori

International Review of Economics & Finance, 2024, vol. 89, issue PB, 762-783

Abstract: We explore how financial literacy affects mutual fund investments through unique survey data from a broad spectrum of Japanese households. Our evidence reveals the dual effects of literacy on investments over long and short horizons. While the acquisition of financial knowledge promotes long-term investment in mutual funds, it also has the side effect of encouraging short-term investment. Specifically, people with high financial literacy share a fundamental recognition that mutual funds are suitable for long-term wealth creation. However, highly literate people intend to sell mutual funds immediately after short-term price appreciation, which could lead to frequent trading turnover. This is consistent with the knowledge bias effect whereby knowledgeable people falsely react to information, contrary to long-term investments.

Keywords: Financial literacy; Mutual fund; Long-term investment; Short-term trade; Knowledge bias (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:89:y:2024:i:pb:p:762-783

DOI: 10.1016/j.iref.2023.10.006

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