Financial competence, overconfidence, and trusting investments: Results from an experiment

McCannon, Bryan C.; Asaad, Colleen Tokar; Wilson, Mark

doi:10.1007/s12197-015-9328-4

Cited by 27 publications

(20 citation statements)

References 68 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…In an important study of stock trading behavior, researchers found that over-confidence was associated with higher levels of trading and lower portfolio returns for online traders (Barber and Odean 2001). Other researchers also found that over-confidence was a significant determinant of risky financial behavior: over-confident individuals made larger contributions in an investment game and were willing to take greater investment risk (McCannon et al 2015).…”

Section: Other Demographic and Psychographic Variablesmentioning

confidence: 99%

Understanding and Combating Investment Fraud

Kieffer¹,

Mottola²

2017

Oxford Scholarship Online

View full text Add to dashboard Cite

Investment fraud is a significant problem in America. Many Baby Boomers are entering retirement with significant assets, and enforcement actions by financial regulators indicate that investors can be vulnerable to fraud at key ‘wealth events’ in their lives, such as when they face a decision about what to do with money arising from the sale of a house, an inheritance, or an IRA rollover. Protecting these assets—for Baby Boomers and younger generations who face key wealth events—will be important to ensure the financial well-being and retirement security of millions of Americans. This chapter reviews the prevalence and impact of financial and investment fraud, explores the value of using demographic characteristics, psychographic characteristics, and the number of times an individual is targeted for fraud to predict investment fraud victimization, explains how fraudsters use social influence tactics to defraud their victims, and describes current investor protection efforts.

show abstract

Section: Other Demographic and Psychographic Variablesmentioning

confidence: 99%

Understanding and Combating Investment Fraud

Kieffer¹,

Mottola²

2017

Oxford Scholarship Online

View full text Add to dashboard Cite

show abstract

“…In terms of investing behavior, overconfidence leads to excessive trading and under‐diversification. In experimental markets, overconfident individuals trade more (Deaves, Lüders, and Luo, 2009) and make larger contributions in an investment game (McCannon, Asaad, & Wilson, 2016). Barber and Odean (2000) find that overconfidence and excessive trading lead to trading costs and poor performance.…”

Section: Review Of the Literaturementioning

confidence: 99%

Investor confidence: Are you your own worst enemy?

Asaad

2020

Fin Plan Rev

Self Cite

View full text Add to dashboard Cite

Are overconfident investors more apt to make risky choices, which could erode investor returns? With confidence levels that exceed knowledge levels, investors may unknowingly expose themselves to risk. This paper shows that in terms of investing, overconfidence is associated with increased optimism as well as additional risk-taking through focused investment strategies. Specifically, overconfident individuals are more likely to be overoptimistic about their individual performance as well as overall market performance; more likely to have confidence in market regulations; less likely to seek the advice of an adviser; more likely to trade on margin; more likely to trade commodities, futures, and options; and more likely to have whole life insurance. Overconfidence may help explain why investor returns are consistently lower than investment returns. These findings are particularly relevant for financial advisers, as they serve the important role of providing feedback and sharing in the decision process.

show abstract

“…This is in line with recent research by Von Gaudecker (2015), who finds that most losses from lacking diversification are incurred by overconfident investors. McCannon et al (2016) show that overconfident clients, who believe they possess more knowledge and understanding than they actually do, lead investors to underestimate risks and shortcomings of certain investment options, although results by Hackethal et al (2012) suggest that such biased behavior seems to diminish with experience.…”

Section: Neglected Factors In the Analysis Of Financial Behaviormentioning

confidence: 99%

Financial Education for the Disadvantaged? A Review

Entorf

Hou

2018

SSRN Journal

View full text Add to dashboard Cite

Many researchers and politicians have identified a lack of financial literacy among the disadvantaged groups of the society. Thus, unequal access to financial markets seems to be a major source of economic inequality, and tackling inequality by starting financial education initiatives seems to be a straightforward solution. However, in contrast to the popularity of financial education interventions worldwide, studies on the economic effects of those interventions report mixed results. With a focus on the effect of disadvantaged groups, we review both the theoretical and empirical findings in order to understand why this discrepancy exists. The survey highlights that it is necessary to distinguish between the concepts of financial education, financial literacy and financial behavior in order to disentangle cause and effect. To understand the heterogeneity of potential outcomes, we review theoretical explanations which address the effect of interventions across the population and over the life cycle. Looking at empirical results, we discuss the importance of potentially neglected factors such as cognitive ability, mathematical capability or numeracy, and we find that the young, the immigrants/migrants and the low-income groups obtain more attention from scholars than other disadvantaged groups. Some support in favor of financial education for the young has been detected in terms of higher short-term financial knowledge and awareness, but there is no proven evidence of improved long-term behavior after growing up. From the methodological point of view, in recent years randomized control trials (RCT) have become a popular method to evaluate the effects of financial education, in particular for studies on remittance behavior of migrants. Our review discusses some limitations of both RCTs and econometric studies which might be taken into account by future research. In sum, despite the enthusiasm of many politicians, who see financial education and financial literacy as the key to tackle the problem of financial vulnerability and economic inequality, so far, there is no clear evidence, or at least no scientific consensus, on the effectiveness of performed interventions. The constant search for effective financial education might even cost enormously such that the costs of financial education programs would outweigh potential benefits. It is perhaps true that the financial behavior of the poor is arguably more controlled by lack of aspirations such that financial policy should be directed towards behaviorally motivated anti-poverty policies or simply education in general.Electronic copy available at: https://ssrn.com/abstract=3167709 In contrast to the popularity of financial education interventions worldwide, studies on the economic effects of those interventions report mixed results. With a focus on the effect on disadvantaged groups, we review both the theoretical and empirical findings in order to understand why this discrepancy exists. The survey first highlights that it is necessary to distinguish between the conc...

show abstract

Financial competence, overconfidence, and trusting investments: Results from an experiment

Cited by 27 publications

References 68 publications

Understanding and Combating Investment Fraud

Understanding and Combating Investment Fraud

Investor confidence: Are you your own worst enemy?

Financial Education for the Disadvantaged? A Review

Contact Info

Product

Resources

About