The Impact of Financial Advice on Trade Performance and Behavioral Biases

Review of Finance, Forthcoming

52 Pages Posted: 14 Dec 2014 Last revised: 28 Jun 2017

Daniel Hoechle

FHNW School of Business - Institute for Finance; University of Basel - Department of Finance

Stefan Ruenzi

University of Mannheim - Department of International Finance

Nic Schaub

University of St. Gallen - Swiss Institute of Banking and Finance; University of St. Gallen - School of Finance

Markus Schmid

University of St. Gallen - Swiss Institute of Banking and Finance; University of St. Gallen - School of Finance

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

Hoechle, Daniel and Ruenzi, Stefan and Schaub, Nic and Schmid, Markus, The Impact of Financial Advice on Trade Performance and Behavioral Biases (May 20, 2016). Review of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2537368 or http://dx.doi.org/10.2139/ssrn.2537368

Daniel Hoechle

FHNW School of Business - Institute for Finance ( email )

Peter Merian-Strasse 86
Basel, CH-4002
Switzerland
+41 61 279 17 73 (Phone)

University of Basel - Department of Finance ( email )

Peter Merian-Weg 6
Basel, CH-4002
Switzerland

Stefan Ruenzi

University of Mannheim - Department of International Finance ( email )

L9, 1-2
Mannheim, 68131
Germany

Nic Schaub

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Rosenbergstrasse 52
St. Gallen, CH-9000
Switzerland

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Markus Schmid (Contact Author)

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Rosenbergstrasse 52
St. Gallen, 9000
Switzerland

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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