Do retail investors bite off more than they can chew? A close look at their return objectives
52 Pages Posted: 19 Jun 2020 Last revised: 25 May 2021
Date Written: March 8, 2021
Using self-reported retail investor information from a risk-return profile survey, we investigate the determinants of individual return objectives as well as the capacity of investors to achieve 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 sociodemographic variables (age and education), and recent past trading intensity. Retail investors
with higher return objectives perform better than their counterparts who want to avoid any risk of capital loss. The capacity to achieve the return objective, however, decreases as the level of the objective increases.
Keywords: Return objectives, Risk tolerance, Financial literacy, Retail investors, MiFID
JEL Classification: G11, G40
Suggested Citation: Suggested Citation