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 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.
| Author: | Markku Kaustia, Antti Lehtoranta, Vesa Puttonen |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-293716 |
| URL: | http://ssrn.com/abstract=2209649 |
| DOI: | https://doi.org/10.2139/ssrn.2209649 |
| Parent Title (German): | SAFE working paper series ; No. 3 |
| Series (Serial Number): | SAFE working paper (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 |
| Page Number: | 50 |
| HeBIS-PPN: | 337746346 |
| Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
| Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) | |
| Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Deutsches Urheberrecht |
