Appetite for information and trading behavior

Abstract

MiFID questionnaires came into force in November 2007, and provide the ideal opportunity for a natural field experiment to analyze how the attitude of retail investors towards financial information affects their trading activity. This study uses a random matching procedure that controls for sociodemographics, financial experience, education and various MiFID answers to analyze the trading characteristics of investors who only differ from others in their “appetite for information”. We explore the hypothesis that the investors who voluntarily ask for financial information are de facto revealing a particular characteristic that may be indicative of their trading behavior. The results show that the investors who display an appetite for information tend to make smarter investments than their counterparts. Information-hungry investors execute fewer day trades, are less prone to the disposition effect, hold better quality and more diversified portfolios, and are more active on “complex” instruments. Ultimately, they earn higher (risk-adjusted) returns