Working Paper: CEPR ID: DP18173
Authors: Leonardo Gambacorta; Romina Gambacorta; Roxana Mihet
Abstract: This paper analyses the links between advances in financial technology, investors’ sophistication, and the composition and returns of their financial portfolios. We develop a simple portfolio choice model under asymmetric information and derive some theoretical predictions. Using detailed microdata from Banca d’Italia, we test these predictions for Italian households over the period 2004-20. In general, heterogeneity in portfolio composition and in returns between sophisticated and unsophisticated investors grows with improvements in financial technology. This heterogeneity is reduced only if financial technology is accessible to everyone and if investors have a similar capacity to use it.
Keywords: inequality; inclusion; fintech; innovation; matthew effect
JEL Codes: G1; G5; G4; D83; L8; O3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial Technology (G29) | Investor Sophistication (G11) |
| Investor Sophistication (G11) | Portfolio Composition (G11) |
| Financial Technology (G29) | Portfolio Heterogeneity (G11) |
| Investor Sophistication (G11) | Investment in Risky Assets (G11) |
| Reduction in Sophistication Gap (L15) | Capital Income Inequality (D31) |
| Financial Technology (G29) | Capital Income Inequality (D31) |