Investment Experience, Financial Literacy, and Investment‐Related Judgments

Posted: 14 Dec 2018

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2018

Abstract

This research examines how investment experience and financial literacy impact investment-related judgments. Financial literacy refers to a person’s knowledge of fundamental financial concepts. I begin by documenting investors’ demographic characteristics and financial literacy using a relatively large sample of participants (n>2,000) recruited from Amazon’s Mechanical Turk under different categories of investment experience, which I benchmark against national samples of financial capability skills in the United States. I then replicate a sample of three accounting research experiments, varying the type and depth of the underlying accounting issue. Across the three experiments, the data show two main results: First, investment experience strengthens the influence of financial accounting disclosures on participants’ investment-related judgments. Second, financial literacy further strengthens the influence of financial accounting disclosures on investors’ (but not non-investors’) judgments. Collectively, these findings suggest that investment experience and financial literacy can help to identify individuals who are more likely able and willing to study financial reporting information with reasonable diligence as they form their investment-related judgments.

Keywords: financial literacy, individual investor, Amazon Mechanical Turk (MTurk)

JEL Classification: M49, I29, G19

Suggested Citation

Krische, Susan D., Investment Experience, Financial Literacy, and Investment‐Related Judgments (August 1, 2018). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3288741

Susan D. Krische (Contact Author)

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