Can Investor Education Improve Investment Returns？ Evidence from the Mutual Fund Individual Investor Survey
LI Feng, WU Weixing, LI Dongping, LU Xiaomeng
School of Finance/Survey and Research Center for China Household Finance,Southwestern University of Finance and Economics; University of International Business and Economics; China Institute of Finance and Capital Markets
Summary:
Investor education is important for ensuring the smooth operation and benign development of capital markets. Therefore, it has become the main pathway for promoting the sustainable development of China's capital market; accordingly, objectively evaluating its practical effects is of great significance. Using data from the Nationwide Mutual Fund Individual Investor Survey on more than 20,000 investors, this paper analyzes the impact of investor education on mutual fund investment returns and explores its underlying mechanism using the behavioral finance framework. The survey data of mutual fund investors is used for two main reasons. First, individual investors are the main targets of investor education, and the mutual fund market is the primary means through which they participate in the capital market. Second, individual and institutional investors differ significantly in their investment behaviors. “A fund makes money, not the investors” has become a long-time phenomenon in China's fund market. Theoretical and empirical evidence demonstrate that financial literacy significantly affects investment returns. This paper finds that the effect is associated with the way in which financial literacy is obtained. Furthermore, the literature focuses on the effects of financial literacy on risk market participation, investment portfolios, and other aspects. From the behavioral finance perspective, this paper studies the corrective effect of investor education on three types of behavioral bias: trend-chasing, overtrading, and the disposition effect. The results provide a broader perspective and objective support for understanding the behavioral characteristics of mutual fund investors in China. The data include economic and demographic information, fund investment experience, and the interviewees' investment decision-making processes. The questionnaires were distributed in the second quarter of 2019 by fund management companies and sales institutions through a QR code. The quality of the sample was guaranteed by a trial survey before formal collection, tracking and monitoring during collection, and data quality verification after collection. We collected 49,800 valid questionnaires from 31 provinces (municipalities and autonomous regions), and 35,103 of them report mutual fund investments. The final sample comprised 20,131 questionnaires, after removing those with missing data needed to calculate the primary study variable. The findings show that (1) investor education significantly improves the investment returns of mutual fund investors. Compared with other learning methods, such as independent learning, work experience, or learning from relatives and friends, formal investor education (offered by financial institutions or financial/economic courses or training) helps investors achieve a higher return on investment. Therefore, we suggest that the government further accelerate the incorporation of investor education into the national education system. (2) Investor education can help investors achieve a better return on investment by mitigating their behavioral biases. Our data shows that overtrading, trend-chasing, and the disposition effect significantly reduce investment returns, whereas long-term investment objectives, regular fixed investments, reverse strategies, and the counter disposition effect significantly improve investment returns. By improving investors' rationality, investor education increases the probability of investment profitability, total return on investment, and average annual rate of fund investment by 19.41%, 17.09%, and 12.75%, respectively. Therefore, investor education should pay special attention to improving investors' risk identification skills to reduce behavioral bias and promote rational investment concepts. (3) Enthusiasm for and the effectiveness of investor education differ among groups of investors. Therefore, investor education should be tailored to improve its effectiveness for women, high-net-worth individuals, and long-term investors, and designed to appeal to men, low-net-worth individuals, and new investors.
李凤, 吴卫星, 李东平, 路晓蒙. 投资者教育发挥作用了吗？——来自公募基金个人投资者调查数据的证据[J]. 金融研究, 2023, 511(1): 150-168.
LI Feng, WU Weixing, LI Dongping, LU Xiaomeng. Can Investor Education Improve Investment Returns？ Evidence from the Mutual Fund Individual Investor Survey. Journal of Financial Research, 2023, 511(1): 150-168.
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