Download this Paper Open PDF in Browser

Financial Advice Seeking, Financial Knowledge and Overconfidence. Evidence from the Italian Market

47 Pages Posted: 1 Jul 2016  

Monica Gentile

CONSOB (Commissione Nazionale per le Società e la Borsa)

Nadia Linciano

Commissione Nazionale per le Societa e la Borsa (CONSOB)

Paola Soccorso

Commissione Nazionale per le Societa e la Borsa (CONSOB)

Date Written: March 21, 2016

Abstract

This paper investigates the relationship between the propensity to seek for professional advice, financial knowledge and overconfidence, as well as the determinants of financial knowledge and overconfidence for a representative sample of Italian financial decision makers. The demand for financial advice is found to be positively related to financial knowledge and negatively related to overconfidence as measured by the mismatch between perceived and actual capability. High self-assessment of one’s own competence turns out to be significantly and negatively associated with high levels of financial knowledge, which in turn is higher among male, wealthier and more risk averse individuals. These findings show that financial advice acts as a complement rather than as a substitute of financial capability, thus confirming the concerns about regulation of financial advice being not enough to protect less sophisticated investors needing it most. Moreover, behavioural traits such as self-confidence do play a role in financial choices and are related with the level of financial literacy. Therefore, investor education programmes may be beneficial not only directly, i.e. by raising financial competence, but also indirectly, i.e. by enhancing people awareness in their financial capability and by hindering overconfident behaviours and behavioural biases. The paper contributes to the regulatory debate on the development of financial advice as a tool of investor protection. It also delivers relevant policy insights for the Italian context, where the vast majority of individuals exhibit both a low degree of literacy and a high propensity towards informal rather than professional advice.

Keywords: financial advice, financial literacy, overconfidence, investment decisions, behavioural finance

JEL Classification: D1, D12, D14, G02

Suggested Citation

Gentile, Monica and Linciano, Nadia and Soccorso, Paola, Financial Advice Seeking, Financial Knowledge and Overconfidence. Evidence from the Italian Market (March 21, 2016). CONSOB Working Papers No. 83. Available at SSRN: https://ssrn.com/abstract=2802589 or http://dx.doi.org/10.2139/ssrn.2802589

Monica Gentile

CONSOB (Commissione Nazionale per le Società e la Borsa) ( email )

Roma 00198
Italy

Nadia Linciano (Contact Author)

Commissione Nazionale per le Societa e la Borsa (CONSOB) ( email )

Roma 00198
Italy

Paola Soccorso

Commissione Nazionale per le Societa e la Borsa (CONSOB) ( email )

Roma 00198
Italy

Paper statistics

Downloads
122
Rank
194,464
Abstract Views
432