We examine underlying factors that explain an exceptionally low stock market participation rate among Lithuanian households by carrying out a comprehensive survey of mass affluent individuals. The probit regression analysis of the survey results indicates that lack of financial literacy, low...

This research investigates whether the financial literacy of individuals influences risk taking decisions and diversification behavior. This issue is relevant in that investors are increasingly in charge of their own financial security, but they have to deal with financial instruments whose...

Individual investors trade excessively, sell winners too soon, and overweight stocks with lottery features and low expected returns. This paper proposes and models a financial innovation, called stock loan lotteries, that improves individual investor performance. An individual investor signs a...

Many financial situations present individuals with simple alternatives to solving complex problems. The value of these alternatives depends on whether individuals are sophisticated and know when they are better off opting out of complexity. We tested complexity's effects and evaluated...

Since the 1990s, the SEC has advocated for financial disclosures to be in "plain English" so that they would be more readable and informative. Past research has shown that high readability is related to more extreme investor judgments of firm performance. Processing fluency is the prevalent...

We present a model with dynamic investment flows, where fund managers have the ability to generate excess returns and study how forcing them to commit part or all of their personal wealth to the fund they manage affects fund risk taking. We contrast the behavior of a manager that may invest her...

In this paper we introduce a simple, yet flexible approach to construct (enhanced) index tracking portfolios. PADME (Portfolio Allocation via Density MatchEs) uses the density function of returns as a robust means of capturing investor preferences, and identifies suitable portfolios through a...

We determine the optimal investment strategy in a Black-Scholes financial market to minimize the so-called probability of drawdown, namely, the probability that the value of an investment portfolio reaches some fixed proportion of its maximum value to date. We assume that the portfolio is...

This study shows that mutual fund managers vary in their reliance on category-level information, relative to firm-specific information about assets. Moreover, fund performance decreases with managers' propensity to rely on categories. Fund managers display less skill in picking stocks which are...