Download This PaperThe Impact of Financial Advice on Trade Performance and Behavioral Biases
Review of Finance, Forthcoming
52 Pages Posted: 14 Dec 2014 Last revised: 22 May 2016
Date Written: May 20, 2016
Abstract
We use a dataset from a large retail bank to examine the impact of financial advice on investors’ stock trading performance and behavioral biases. Our data allow us to classify each individual trade as either advised or independent and to compare them in a trade-by-trade within-person analysis. Thus, our study is not plagued by the endogeneity problems typically faced by studies on financial advice. We document that advisors hurt trading performance. However, they help to reduce some of the behavioral biases retail investors are subject to, but this does not overcompensate the negative performance effects of the bad stock recommendations.
Keywords: financial advice, individual investors, trade performance, behavioral biases
JEL Classification: D14, G11, G21
Suggested Citation: Suggested Citation
Markus Schmid (Contact Author)
University of St. Gallen - Swiss Institute of Banking and Finance ( email )
Unterer Graben 21
St. Gallen, 9000
Switzerland
University of St. Gallen - School of Finance ( email )
Unterer Graben 21
St.Gallen, CH-9000
Switzerland
Swiss Finance Institute
c/o University of St. Gallen
Dufourstrassse 50
St. Gallen, SG 9000
Switzerland
European Corporate Governance Institute (ECGI) ( email )
c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium