Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/88739
Authors: 
Kaustia, Markku
Lehtoranta, Antti
Puttonen, Vesa
Year of Publication: 
2013
Series/Report no.: 
SAFE Working Paper Series 3
Abstract: 
We use unique data fromfinancial advisers' professional exam scores and combine it with other variables to create an index of financial sophistication. Using this index to explain long-term stock return expectations, we find that more sophisticated financial advisers tend to have lower return expectations. A one standard deviation increase in the sophistication index reduces expected returns by 1.1 percentage points. The effect is stronger for emerging market stocks (2.3 percentage points). The sophistication effect contributes 60% to the model fit, while employer fixed effects combined contribute less than 30%. These results help understand the formation of potentially excessively optimistic expectations.
Subjects: 
stock return expectations
sophistication
financial literacy
adviser
JEL: 
D84
G11
G24
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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