Do retail investors bite off more than they can chew? A close look at their return objectives
50 Pages Posted: 19 Jun 2020 Last revised: 8 Mar 2021
Date Written: March 8, 2021
Using information self-reported by retail investors in a risk-return profiling survey, we investigate the determinants of individual return objectives as well as the capacity of investors to reach them. Controlling for a large set of covariates, we provide empirical evidence that return objectives are related to subjective individual characteristics (such as financial literacy and risk tolerance), some sociodemographics (age, education), as well as recent past trading intensity. Retail investors with
higher return objectives perform better, compared to their counterparts who want to avoid any risk of capital loss. The capacity to reach the return objective however decreases as the level of return objectives increases.
Keywords: Return objectives, Risk tolerance, Financial literacy, Retail investors, MiFID
JEL Classification: G11, G40
Suggested Citation: Suggested Citation