Knowledge is Power: A Field Experiment in the Chinese and US Stock Markets

Abstract

This study examines the causal impact of financial knowledge on stock pricing efficiency. We created an investor education website and conducted a field experiment by providing knowledge about the pricing implications of accounting accruals to investors in randomized stock groups via social media platforms in both China and the U.S. We find that treatment stocks experience a reduction in accrual mispricing relative to control stocks. This effect is strengthened among stocks with investors who are less sophisticated. Finally, we document a real effect of financial knowledge on firms. Treatment firms experience a decline in discretionary accruals in the post-experiment period.

Keywords: Financial knowledge, accrual mispricing, investor education, field experiment, social media

JEL Classification: G14; G41, G53, C93