Improving index mutual fund risk perception

Increase financial literacy or communicate better?

Peter de Goeij, Geert Van Campenhout, Marjana Subotic

Research output: Contribution to journalSpecial issueScientificpeer-review

Abstract

We investigate the effect of financial literacy and index mutual fund risk disclosure format on investors’ risk perception by examining the risk disclosure part in the Key Investor Information Document (KIID) for UCITS funds in Europe. Using an experimental survey administered to 244 university students we find that both financial literacy and the KIID risk representation affect investors’ risk level perception accuracy. In addition, we find indications that financial literacy is less important if the complexity of the risk decision framework is reduced, although in our sample this effect is weak. Our results indicate that as an alternative to efforts taken to stimulate financial literacy, policy makers can effectively impact investors’ risk assessment by presenting a risk indicator that simplifies the decision framework for all investors, irrespective of their level of financial literacy.
Original languageEnglish
Pages (from-to)519-552
JournalEconomic Notes
Volume47
Issue number2-3
DOIs
Publication statusPublished - Jul 2018

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Risk perception
Investors
Financial literacy
Mutual funds
Risk disclosure
Financial index
Politicians
Risk assessment

Cite this

de Goeij, Peter ; Van Campenhout, Geert ; Subotic, Marjana. / Improving index mutual fund risk perception : Increase financial literacy or communicate better?. In: Economic Notes. 2018 ; Vol. 47, No. 2-3. pp. 519-552.
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Improving index mutual fund risk perception : Increase financial literacy or communicate better? / de Goeij, Peter; Van Campenhout, Geert; Subotic, Marjana.

In: Economic Notes, Vol. 47, No. 2-3, 07.2018, p. 519-552.

Research output: Contribution to journalSpecial issueScientificpeer-review

TY - JOUR

T1 - Improving index mutual fund risk perception

T2 - Increase financial literacy or communicate better?

AU - de Goeij, Peter

AU - Van Campenhout, Geert

AU - Subotic, Marjana

PY - 2018/7

Y1 - 2018/7

N2 - We investigate the effect of financial literacy and index mutual fund risk disclosure format on investors’ risk perception by examining the risk disclosure part in the Key Investor Information Document (KIID) for UCITS funds in Europe. Using an experimental survey administered to 244 university students we find that both financial literacy and the KIID risk representation affect investors’ risk level perception accuracy. In addition, we find indications that financial literacy is less important if the complexity of the risk decision framework is reduced, although in our sample this effect is weak. Our results indicate that as an alternative to efforts taken to stimulate financial literacy, policy makers can effectively impact investors’ risk assessment by presenting a risk indicator that simplifies the decision framework for all investors, irrespective of their level of financial literacy.

AB - We investigate the effect of financial literacy and index mutual fund risk disclosure format on investors’ risk perception by examining the risk disclosure part in the Key Investor Information Document (KIID) for UCITS funds in Europe. Using an experimental survey administered to 244 university students we find that both financial literacy and the KIID risk representation affect investors’ risk level perception accuracy. In addition, we find indications that financial literacy is less important if the complexity of the risk decision framework is reduced, although in our sample this effect is weak. Our results indicate that as an alternative to efforts taken to stimulate financial literacy, policy makers can effectively impact investors’ risk assessment by presenting a risk indicator that simplifies the decision framework for all investors, irrespective of their level of financial literacy.

U2 - 10.1111/ecno.12112

DO - 10.1111/ecno.12112

M3 - Special issue

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JO - Economic Notes

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