Investor Competence, Information, and Investment Activity

38 Pages Posted: 3 Mar 2008

See all articles by Anders Karlsson

Anders Karlsson

Stockholm University - Department of Corporate Finance

Lars L. Norden

Stockholm University - Stockholm Business School

Date Written: February 28, 2008

Abstract

According to Heath and Tversky (1991), people are more willing to bet on their own judgments in areas where they consider themselves more knowledgeable or competent. We analyze the competence effect in the context of individuals' choices in their own pension accounts. We find that individuals with a high own perceived competence regarding the new Swedish pension system are more likely to actively choose mutual funds in their own accounts, whereas individuals with a low perceived competence are less likely to make an active choice. We also find a significantly positive relationship between an individual's information processing and perceived competence, consistent with the notion that competence is enhanced information processing, and diminished by calling to attention information that is not available to the individual.

Keywords: Investor competence, Information, Individual behavior, Investment

JEL Classification: D80, E21, G11, G23

Suggested Citation

Karlsson, Anders and Nordén, Lars L., Investor Competence, Information, and Investment Activity (February 28, 2008). Available at SSRN: https://ssrn.com/abstract=1007193 or http://dx.doi.org/10.2139/ssrn.1007193

Anders Karlsson

Stockholm University - Department of Corporate Finance ( email )

School of Business
SE-106 91 Stockholm
Sweden
+46 8 162180 (Phone)
+46 8 153054 (Fax)

Lars L. Nordén (Contact Author)

Stockholm University - Stockholm Business School ( email )

Sweden

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