An investigation of the impact of financial literacy, risk attitude, and saving motives on the attenuation of mutual fund investors’ disposition bias

Abstract

Purpose

The purpose of this paper is to investigate the impact of financial literacy, risk attitude, and saving motives on the attenuation of mutual fund investors’ disposition bias. Specifically, the authors focus on individual characteristics explaining the investors’ propensity to sell shares in a poorly performing mutual fund.

Design/methodology/approach

The study relies on survey data collected from 1,564 Swedish households in 2013. The authors test the hypotheses considering three different portfolio compositions and portfolio performances. Each composition corresponds to a dependent variable and a separate model which are estimated using ordinal logistic regression.

Findings

The authors find that different forms of financial literacy affect attenuation of the disposition effect. Specifically, the authors find that knowledge about mutual funds and knowledge about current market conditions affect the attenuation of the disposition effect, whereas the authors find no support for the effect of “technical financial knowledge” (e.g. the ability to calculate compound interest rates). The authors also find no support for the effects of risk attitude and saving motives on the attenuation of the disposition bias.

Originality/value

The findings suggest a need for a more fine-grained conceptualization of the financial literacy concept and its effect on investors’ disposition bias. Since an important implication of the findings is that financial literacy could potentially help people overcome behavioral bias, the study provides insights for policymakers as well as into the discussion on the design of consumer education programs.

Citation

Jonsson, S., Söderberg, I.-L. and Wilhelmsson, M. (2017), "An investigation of the impact of financial literacy, risk attitude, and saving motives on the attenuation of mutual fund investors’ disposition bias", Managerial Finance, Vol. 43 No. 3, pp. 282-298. https://doi.org/10.1108/MF-10-2015-0269