Financial Literacy and Portfolio Diversification
ISEG-UTL; Technical University of Lisbon (UTL) - Research Unit on Complexity and Economics (UECE); Instituto Superior de Economia e Gestão - CISEP
CMVM - Comissao do Mercado de Valores Mobiliarios
Quantitative Finance, Vol. 10, No. 5, pp. 515-528, 2010
We use a survey of individual investors disclosed by the Portuguese securities commission (CMVM) in May 2005 to study the impact of investors’ levels of financial literacy on portfolio diversification. We consider distinct aspects of financial literacy, and control for socioeconomic and behavioral differences among individual groups of investors. Our results suggest that investors’ educational levels and their financial knowledge have a positive impact on investor diversification. The information sources used by retail investors to gather information on markets and financial products also have a significant impact on the number of different assets included in a portfolio.
Keywords: Educational Finance, Resource Allocation
JEL Classification: G11, I20, G32, J24Accepted Paper Series
Date posted: April 14, 2011
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