Business Education and Portfolio Returns

Abstract

We provide evidence of a positive causal link between financial knowledge acquired through business education and returns on stock investments. Using exogenous variation generated by admission thresholds to university business programs in Sweden, we document that early investments in financial sophistication causes individuals to invest significantly more in the stock market, to earn higher portfolio returns, and to end up accumulating higher levels of wealth. Investments in financial sophistication at the launch of economic life thus significantly alters the life cycle wealth profiles of individuals.

Keywords: Financial literacy, portfolio choice, portfolio returns, household wealth accumulation.

JEL Classification: G51, G53, D31, G11.