Does sophistication affect long-term return expectations? : Evidence from financial advisers' exam scores

We use unique data from financial advisers’ professional exam scores and combine it with other variables to create an index of financial sophistication. Using this index to explain long-term stock return expectations, we
We use unique data from financial advisers’ professional exam scores and combine it with other variables to create an index of financial sophistication. Using this index to explain long-term stock return expectations, we find that more sophisticated financial advisers tend to have lower return expectations. A one standard deviation increase in the sophistication index reduces expected returns by 1.1 percentage points. The effect is stronger for emerging market stocks (2.3 percentage points). The sophistication effect contributes 60% to the model fit, while employer fixed effects combined contribute less than 30%. These results help understand the formation of potentially excessively optimistic expectations.
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Metadaten
Author:Markku Kaustia, Antti Lehtoranta, Vesa Puttonen
URN:urn:nbn:de:hebis:30:3-293716
URL:http://ssrn.com/abstract=2209649
DOI:http://dx.doi.org/10.2139/ssrn.2209649
Parent Title (German):SAFE working paper series ; No. 3
Series (Serial Number):SAFE working paper series (3)
Publisher:Goethe-Univ., House of Finance, Sustainable Architecture for Finance in Europe, SAFE
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2013
Date of first Publication:2013/01/22
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2013/04/17
Tag:adviser; financial literacy; sophistication; stock return expectations
Pagenumber:50
HeBIS PPN:337746346
Institutes:Wirtschaftswissenschaften
House of Finance (HoF)
Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:D84 Expectations; Speculations
G11 Portfolio Choice; Investment Decisions
G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies (Updated!)
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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