Do Individual Investors Bite Off More Than They Can Chew?

32 Pages Posted: 19 Jun 2020 Last revised: 22 Jun 2020

See all articles by Catherine D'Hondt

Catherine D'Hondt

UCLouvain, Louvain School of Management - Louvain Finance

Rudy De Winne

UCLouvain - Louvain Finance

Maxime Merli

Strasbourg University, LaRGE Research Center, EM Strasbourg Business School

Date Written: May 26, 2020

Abstract

Surveys worldwide indicate that return expectations of individual investors are often high. This paper investigates the determinants of individual target returns and the capacity of investors to reach their expectations. Using trading records and matched survey data for 4,140 retail investors, we show that investor target returns are mainly driven by subjective financial literacy and subjective risk tolerance, as well as some socio-demographics (age and education). Investors with higher target returns and investors with the highest subjective risk tolerance are less able to reach their targets. Although high financial literacy and high risk tolerance are strong drivers of investor ambition, they do not guarantee better success.

Keywords: Target returns, Financial risk tolerance, Financial literacy, Individual investors

JEL Classification: G11, G40

Suggested Citation

D'Hondt, Catherine and De Winne, Rudy and Merli, Maxime, Do Individual Investors Bite Off More Than They Can Chew? (May 26, 2020). Available at SSRN: https://ssrn.com/abstract=3610900 or http://dx.doi.org/10.2139/ssrn.3610900

Catherine D'Hondt (Contact Author)

UCLouvain, Louvain School of Management - Louvain Finance ( email )

151 Chaussée de Binche
Mons, 7000
Belgium

Rudy De Winne

UCLouvain - Louvain Finance ( email )

Belgium
+3265323334 (Phone)

Maxime Merli

Strasbourg University, LaRGE Research Center, EM Strasbourg Business School ( email )

PEGE
61 avenue de la ForĂȘt Noire
Strasbourg, 67000
France

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