Working Paper: CEPR ID: DP4182
Authors: Luigi Guiso; Tullio Jappelli
Abstract: The extent to which consumers are aware of available financial assets depends on the incentives of asset suppliers to spread information about the instruments they issue. We propose a theoretical framework in which the amount of information disseminated and the probability of individuals becoming aware of financial assets are correlated with the probability that, once informed, they will invest in the asset and negatively affected by the cost of spreading information. Social learning is a further channel through which potential investors may come to be informed about existing assets. While social learning may limit the production of financial information by assets suppliers, it increases the probability that individuals become financially aware. These predictions are supported by data on awareness of financial assets available in the 1995 and 1998 waves of the Italian Survey of Household Income and Wealth. Lack of financial awareness has important implications for understanding the stockholding puzzle and for estimating stock market participation costs.
Keywords: financial information; portfolio choice
JEL Codes: D80; E20; G10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial awareness (G53) | stock market participation (G10) |
| lack of awareness (D83) | stockholding puzzle (D14) |
| financial wealth (G51) | financial awareness (G53) |
| education (I29) | financial awareness (G53) |
| social interactions (Z13) | financial awareness (G53) |
| lower entry costs (D49) | stock market participation (G10) |
| lower entry costs (D49) | financial intermediaries disseminating information (G20) |
| social learning (C92) | financial awareness (G53) |
| financial awareness (G53) | likelihood of stock market participation (G41) |