Refine
Document Type
- Article (2)
- Working Paper (2)
Language
- English (4)
Has Fulltext
- yes (4)
Is part of the Bibliography
- no (4)
Keywords
- Consumption (1)
- Dividends (1)
- Excess sensitivity (1)
- Household finance (1)
- Investor education (1)
- Retail investors (1)
- Self-control (1)
- Stock market wealth (1)
- dividends (1)
- educational intervention (1)
- free dividend fallacy (1)
IN THE CURRENT REGIME OF LOW INTEREST RATES, TAKING SOUND SAVINGS DECISIONS POSES A SIGNIFICANT CHALLENGE TO MOST INDIVIDUALS. FUND SAVINGS PLANS ALLOW TO ACCUMULATE PRIVATE SAVINGS VIA AUTOMATED RECURRING INVESTMENTS IN SELECTED FUNDS. LOW FEES AND SMALL MINIMUM INVESTMENT AMOUNTS MAKE THEM A SUITABLE SAVINGS VEHICLE ALSO FOR LOW NET-WORTH INDIVIDUALS. WHILE TRADITIONAL FINANCIAL ADVISORS ONLY RELUCTANTLY PROVIDE ADVICE ON SMALL-SCALE INVESTMENTS, THE RECENT SURGE OF ROBO-ADVISORS ENABLES ACCESS TO ADVICE ON SAVINGS PLAN CHOICES FOR INVESTORS FROM ALL WEALTH BANDS. IN THIS REPORT, WE PRESENT EMPIRICAL RESULTS ON THE IMPACT OF INTRODUCING AN AUTOMATED INVESTMENT TOOL AT A LARGE GERMAN ONLINE BANK ON PRIVATE INVESTORS’ SAVINGS DECISIONS.
ON JUNE 18TH, WIRECARD’S SHARE PRICE PLUMMETED BY MORE THAN 60% FOLLOWING THE FIRM’S ADMISSION OF BEING SUBJECT TO “ENORMOUS FRAUD” AND BILLIONS OF EUROS MISSING. THIS REPORT DOCUMENTS GERMAN RETAIL INVESTORS’ RESPONSE AND FINDS THAT THE POPULARITY OF WIRECARD AMONG RETAIL INVESTORS LED TO SUBSTANTIAL LOSSES IN THEIR PORTFOLIOS. THESE LOSSES WERE EXACERBATED BY STRONG BUYING SENTIMENT AFTER THE ANNOUNCEMENT. THE FAILING STOCK WAS PURCHASED BY INVESTORS ALREADY ENGAGED IN IT AS WELL AS NON-EXPOSED CUSTOMERS.
Consuming dividends
(2020)
This paper studies why investors buy dividend-paying assets and how they time their consumption accordingly. We combine administrative bank data linking customers’ consumption transactions and income to detailed portfolio data and survey responses on financial behavior. We find that private consumption is excessively sensitive to dividend income. Investors across wealth, income, and age distributions increase spending precisely around days of dividend receipt. Importantly, the consumption response is driven by financially prudent investors who select dividend portfolios, anticipate dividend income, and plan consumption accordingly. Our results contribute to the literature on a dividend clientele and provide evidence of ‘planned’ excess sensitivity.
We educate investors with significant dividend holdings about the benefits of dividend reinvestment and the costs of misperceiving dividends as additional, free income. The intervention increases planned dividend reinvestment in survey responses. Using trading records, we observe a corresponding causal increase in dividend reinvestment in the field of roughly 50 cents for every euro received. This holds relative to their prior behavior and a placebo sample. Investors who learned the most from the intervention update their trading by the largest extent. The results suggest the free dividends fallacy is a significant source of dividend demand. Our study demonstrates that simple, targeted, and focused educational interventions can affect investment behavior.