Experience as a Driver of Individual Investor's Product Class Choice

Abstract

I use an administrative dataset from a large German discount broker to investigate the influence of individual investors' experience on investment product choices. I find that the probability to trade warrants increases with investor experience (approximated by account tenure, months of active trading or number of purchases). Account tenure has a negative impact on bonds, funds and certificates trading, whereas number of active months and purchases increases the probability to trade in all product classes. However, the impact of these variable on market entry is not the same: the probability to enter bond and fund markets decreases with experience, and increases for other products. When relating investors' product choices with previous account performance, recent highest and lowest returns stimulate warrant trading, whereas in the long term it is only related to lowest return quintile.

Keywords: household finance, individual investor, portfolio choice, learning, experience

JEL Classification: D14, G11