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The Impact of Financial Advice on Trade Performance and Behavioral Biases

Author

Listed:
  • Hoechle, Daniel
  • Ruenzi, Stefan
  • Schaub, Nic
  • Schmid, Markus
Abstract
We use a dataset from a large retail bank to examine the impact of financial advice on investors’ stock trading performance and behavioral biases. Our data allow us to classify each individual trade as either advised or independent and to compare them in a trade-bytrade within-person analysis. Thus, our study is not plagued by the endogeneity problems typically faced by studies on financial advice. We document that advisors hurt trading performance. However, they help to reduce some of the behavioral biases retail investors are subject to, but this does not overcompensate the negative performance effects of the bad stock recommendations.

Suggested Citation

  • Hoechle, Daniel & Ruenzi, Stefan & Schaub, Nic & Schmid, Markus, 2014. "The Impact of Financial Advice on Trade Performance and Behavioral Biases," Working Papers on Finance 1419, University of St. Gallen, School of Finance, revised Dec 2015.
    • Handle: RePEc:usg:sfwpfi:2014:19
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    File URL: http://ux-tauri.unisg.ch/RePEc/usg/sfwpfi/WPF-1419.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    financial advice; individual investors; trade performance; behavioral biases;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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