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

1 Citation (Scopus)

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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