Investment and Financial Illiteracy and Behavioral Biases in Trading

Unlike most prior research focusing on examining how financial literacy affects people’s decision-making processes, this paper analyzes the impacts of individuals’ investment and financial illiteracy on retail investors’ trading behaviors. Using the survey data of the 2021 National Financial Capability Study and its subsequent Investor Study, this paper highlights that the more incorrect answers investors get in the investment and financial literacy quizzes, the more likely they are to trade meme stocks and believe in beating the market. On the contrary, the more “don’t know” option investors select in the quizzes, the less likely they are to have such trading behavior and belief. These effects are more pronounced in male than in female investors, and among retail investors younger than 75 years old (inclusive). Not knowing too much about finance is by no means what this paper advocates for, however, it does work as a natural preventive barrier for retail investors who select “don’t know” responses in the investment and financial literacy quizzes.

Author

• Liang, Li

Language

• English

Keyword

• Behavioral biases
• Financial illiteracy
• Investment illiteracy
• Trading

Date created

• 2024

Type of Work

• Dissertation

License

• All rights reserved

Rights statement

• In Copyright

GW Unit

• Business Administration

Degree

• Ph.D.

Advisor

• Jostova, Gergana GJ

Committee Member(s)

• Bhagwat, Vineet VB
• Van Order, Robert RO
• Lusardi, Annamaria AL

Persistent URL

•  https://scholarspace.library.gwu.edu/etd/7h149q73b