Measuring the Financial Sophistication of Households

By Laurent E. Calvet, John Y. Campbell, Paolo Sodini. 2009

506 citations recorded by the source corpus.

Many households invest in ways that are hard to reconcile with standard financial theory and that have been labelled as investment mistakes (Campbell 2006; Calvet, Campbell, and Sodini, henceforth “CCS,” 2007). There is increasing interest among household finance research-ers in the concept of financial sophistication, defined as the ability of a household to avoid making such mistakes. A growing empirical lit-erature documents a cross-sectional correlation between household characteristics and invest-ment mistakes. Richer, better educated house-holds tend to be better diversified (Marshall Blume and Irwin Friend 1975; CCS 2007; William Goetzmann and Alok Kumar 2008; Annette Vissing-Jorgensen 2003), display less inertia (Julie Agnew, Pierluigi Balduzzi, and Annika Sunden 2003; Yannis Bilias, Dimitris Georgarakos, and Michael Haliassos 2008; Campbell 2006; CCS 2009; Vissing-Jorgensen 2002), and have a weaker disposition to hold losing and sell winning stocks (CCS 2009; Ravi Dhar and Ning Zhu 2006) than other house-holds. One feature of these earlier papers is that mistakes are investigated one at a time, often

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/adb63182f8e390d848bbfd78b99418c19ff3ee8b

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

In Economics and Econometrics

Citations in the corpus

Financial Literacy Around the World: An Overview of the Evidence with Practical Suggestions for the Way Forward (2012, unknown): “Calvet et al. (2009), analyzing Swedish households, find that financial sophistication increases with financial wealth and household size, and is positively correlated with holding risky assets.”
Overconfidence and investment: An experimental approach (2017, background): “…are more likely to participate in financial markets (Van Rooij et al. (2011), Almenberg and Dreber (2015)), make fewer mistakes in their investment strategies (Calvet et al. (2009)), engage in retirement planning and as a result accumulate more wealth for retirement (Lusardi and Mitchell (2011)).”
Financial Literacy and the Financial Crisis (2012, unknown): “Calvet, Campbell, and Sodini (2007, 2009) examine data from Sweden and look at actions of investors that can be classified as mistakes.”
IQ, Trading Behavior, and Performance (2012, unknown): “Research, exemplified by Barber and Odean (2000, 2001, 2002), Grinblatt and Keloharju (2001), Rashes (2001), Campbell (2006), and Calvet, Campbell, and Sodini (2007, 2009a, 2009b), shows that these investors grossly under-diversify, trade too much, enter wrong ticker symbols, are subject to the…”
Financial Literacy and Portfolio Dynamics (2016, methodology): “Our estimates are comparable to those obtained by Calvet et al. (2009a), who employ the same method on the entire portfolio holdings of Swedish households and report values of approximately 50%.”
Financial Literacy and Retirement Planning in Australia (2013, background): “For example, Calvet et al. (2009) find a relationship between demographic variables related to financial sophistication and investment mistakes.”
How Does Household Portfolio Diversification Vary with Financial Literacy and Financial Advice (2011, unknown): “These numbers are close to those found for the U.S. (e.g. Bilias et al., 2009; Polkovnichenko, 2005) or Sweden (Calvet et al., 2007).”
The Genetics of Investment Biases (2014, background): “…biases from their parents is inconsistent with the data.12 Wealthier, more educated, and generally more sophisticated investors often make better financial decisions and exhibit fewer investment biases (e.g., Agnew, 2006; Dhar and Zhu, 2006; Kumar, 2009; Calvet, Campbell, and Sodini, 2009).”
The Economic Importance of Financial Literacy: Theory and Evidence (2014, unknown): “More recently, Calvet, Campbell, and Sodini (2007, 2009) evaluated Swedish investors’ actions that they classified as ‘mistakes.’”