Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/228846
Authors: 
Auster, Sarah
Pavoni, Nicola
Year of Publication: 
2020
Series/Report no.: 
ECONtribute Discussion Paper No. 043
Abstract: 
We study the market interaction between financial intermediaries and retail investors, who not only face uncertainty about the performance of the different investments but also have limited awareness of the available investment opportunities. Intermediaries compete for investors via the menu of investment options they offer. We show that when competition is limited, intermediaries restrict their offers to extreme options, e.g. very risky and very safe products. We also consider investor heterogeneity and show that the presence of sophisticated, fully aware investors can impose a negative externality on investors with limited awareness. Self-reported data from customers in the Italian retail investment sector support the key predictions of the model: the menus offered to less knowledgable investors contain few products, most of them are nevertheless perceived to be at the extremes.
Subjects: 
Unawareness
financial investments
delegation
JEL: 
D82
D83
G24
Document Type: 
Working Paper

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