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

See all articles by Catherine D'Hondt

Catherine D'Hondt

UCLouvain, Louvain School of Management - Louvain Finance

Rudy De Winne

UCLouvain - Louvain Finance

Maxime Merli

Strasbourg University, LaRGE Research Center, EM Strasbourg Business School

Date Written: March 8, 2021

Abstract

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

D'Hondt, Catherine and De Winne, Rudy and Merli, Maxime, Do retail investors bite off more than they can chew? A close look at their return objectives (March 8, 2021). Available at SSRN: https://ssrn.com/abstract=3610900 or http://dx.doi.org/10.2139/ssrn.3610900

Catherine D'Hondt (Contact Author)

UCLouvain, Louvain School of Management - Louvain Finance ( email )

151 Chaussée de Binche
Mons, 7000
Belgium

Rudy De Winne

UCLouvain - Louvain Finance ( email )

Belgium
+3265323334 (Phone)

Maxime Merli

Strasbourg University, LaRGE Research Center, EM Strasbourg Business School ( email )

PEGE
61 avenue de la ForĂȘt Noire
Strasbourg, 67000
France

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