Improving Index Mutual Fund Risk Perception: Increase Financial Literacy or Communicate Better?

33 Pages Posted: 12 Jun 2018

See all articles by Peter de Goeij

Peter de Goeij

Tilburg University

Geert Van Campenhout

KU Leuven - FEB@HUBrussel

Marjana Subotič

University of Groningen - Faculty of Economics and Business

Date Written: July‐November 2018

Abstract

We investigate the effect of financial literacy and index mutual fund risk disclosure format on investors’ risk perception by examining the risk disclosure part in the Key Investor Information Document (KIID) for UCITS funds in Europe. Using an experimental survey administered to 244 university students we find that both financial literacy and the KIID risk representation affect investors’ risk level perception accuracy. In addition, we find indications that financial literacy is less important if the complexity of the risk decision framework is reduced, although in our samle this effect is weak. Our results indicate that as an alternative to efforts taken to stimulate financial literacy, policy makers can effectively impact investors’ risk assessment by presenting a risk indicator that simplifies the decision framework for all investors, irrespective of their level of financial literacy.

Suggested Citation

de Goeij, Peter and Van Campenhout, Geert and Subotič, Marjana, Improving Index Mutual Fund Risk Perception: Increase Financial Literacy or Communicate Better? (July‐November 2018). Economic Notes, Vol. 47, Issue 2-3, pp. 519-552, 2018. Available at SSRN: https://ssrn.com/abstract=3192219 or http://dx.doi.org/10.1111/ecno.12112

Peter De Goeij (Contact Author)

Tilburg University ( email )

P.O. Box 90153
Room I607
Tilburg, Noord-Brabant 5000 LE
Netherlands
+31134662083 (Phone)

Geert Van Campenhout

KU Leuven - FEB@HUBrussel ( email )

Warmoesberg 26
Brussel, 1000
Belgium

Marjana Subotič

University of Groningen - Faculty of Economics and Business

Postbus 72
9700 AB Groningen
Netherlands

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