Limited Awareness and Financial Intermediation

Sarah Auster () and Nicola Pavoni
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Sarah Auster: Department of Economics, University of Bonn

No 43, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: We study the market interaction between financial intermediaries and retail in-vestors, who have limited awareness of the available investment opportunities. Inter-mediaries compete for investors via the menu of investment options they offer. We show that, when facing investors with little prior knowledge, intermediaries restrict their offers to extreme options, e.g. very risky and very safe products. In the case where investors are privately informed about their awareness, the presence of sophisti-cated, fully aware investors can impose negative externalities on investors with limited awareness. Self-reported data from customers in the Italian retail investment sector support the key predictions of the model.

JEL-codes: D82 D83 G11 G20 G28 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2020-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_043_2020.pdf Second version, 2022 (application/pdf)

Related works:
Working Paper: Limited Awareness and Financial Intermediation (2022)
Working Paper: Limited Awareness and Financial Intermediation (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ajk:ajkdps:043

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