Investment in Financial Information and Portfolio Performance

Luigi Guiso and Tullio Jappelli ()

No 1807, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: Rational investors perceive correctly the value of financial information. Investment in information is therefore associated with higher expected portfolio returns and Sharpe ratio. Overconfident investors overstate the quality of their own information, and thus investment in information is associated with a lower expected Sharpe ratio despite they realize higher average returns. We contrast the implications of these two models using two unique surveys of customers of a leading Italian bank with portfolio data and measures of financial information. We find that the investment in information is positively associated with returns to financial wealth and negatively to Sharpe ratio. The latter falls with proxies for overconfidence. We relate these findings to the wealth inequality debate.

Pages: 50 pages
Date: 2018, Revised 2018-06
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Related works:
Journal Article: Investment in Financial Information and Portfolio Performance (2020)
Working Paper: Investment in Financial Information and Portfolio Performance (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eie:wpaper:1807

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