Financial Advice and Investor Beliefs: Experimental Evidence on Active vs. Passive Strategies

Antoinette Schoar and Yang Sun

No 33001, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using a randomized controlled trial we test how retail investors assess and update their priors based on different types of financial advice, which either aligns with their priors or goes against it. We compare advice that emphasizes either the benefits of passive investment strategies (such as diversification and low fees) or active strategies (such as stock picking and market timing). We find that participants rate advice significantly higher when it aligns with their priors rather than contradicts them. But people update their beliefs about investment strategies in the direction of the advice they receive, independent of their priors. At the same time, there is significant heterogeneity based on the subjects’ financial literacy. Financially more literate subjects positively update in response to seeing passive advice, but most do not update (and rate the advice negatively) when exposed to active advice. In contrast, financially less literate subjects are strongly influenced by both types of advice. Finally, subjects rate the advice lower if the advisor is perceived to have misaligned incentives compared to when they are more aligned.

JEL-codes: G5 G53 (search for similar items in EconPapers)
Date: 2024-09
New Economics Papers: this item is included in nep-ban, nep-exp and nep-fle
Note: CF
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.nber.org/papers/w33001.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:33001

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w33001
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().