Does FinTech Democratize Investing?

51 Pages Posted: 28 Jan 2020

See all articles by Michael Reher

Michael Reher

University of California, San Diego (UCSD) - Rady School of Management

Stanislav Sokolinski

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Date Written: January 1, 2020

Abstract

We provide evidence that automated asset management affects wealth inequality by reducing a fixed cost of household investment in risky asset markets: account minimums. Using data from a large U.S. robo advisor, we show how an unexpected, 90% reduction in account minimum shifts the wealth distribution of robo investors leftward to become more representative of the U.S. population (i.e. more “democratic”). The reduction increases stock market participation among households from the middle quintiles of the U.S. wealth distribution, raising their risky share by 27 percentage points and their total return on liquid assets by 2 percentage points, relative to wealthier households. However, the reduction has no effect on households in the bottom quintile of the U.S. wealth distribution, suggesting that automation has an ambiguous effect on wealth inequality by favoring middle class households over both the lower and upper classes.

Keywords: FinTech, Stock Market Participation, Financial Advice, Inequality

JEL Classification: G11, G24, D3, O3

Suggested Citation

Reher, Michael and Sokolinski, Stanislav, Does FinTech Democratize Investing? (January 1, 2020). Available at SSRN: https://ssrn.com/abstract=3515707 or http://dx.doi.org/10.2139/ssrn.3515707

Michael Reher (Contact Author)

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Stanislav Sokolinski

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

111 Washington Avenue
Newark, NJ 07102
United States

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