Does Fintech Improve Your Fund Investment?—Analysis Based on Fund Sales Channels
ZHONG Chaojie, ZHAO Chun, GAO Feng, WANG Tianyu, WANG Qian
School of Economics and Management,Tsinghua University; Stanford Graduate School of Busines, Stanford University; School of Economics,Beijing Technology and Business University
Summary:
While Fintech allows investors to enjoy more convenient and cheaper financial services, does it help investors achieve higher returns？ This paper uses a simple model to show that, in the case of investors' misjudgment, the low cost and convenience of Fintech channels will prompt them to trade more frequently, make more mistakes, and thus lead to poorer investment performance. This paper provides new empirical evidence for the impact of Fintech on investors and highlights the importance of investor education. To be specific, this paper provides a theoretical model to illustrate that while Fintech channels reduce transaction costs, they do not necessarily enhance investment returns. In this model, investors with irrational expectations misjudge the market trends, and the reduction in transaction costs leads to their overly frequent trading. These error transactions ultimately result in poorer investment performance. Conversely, higher transaction fees set a higher threshold for trading decisions, thereby mitigating excessive trading. Even though transaction fees themselves reduce returns, they can improve the investment performance of investors with irrational expectations by reducing error transactions. To test the model's predictions, this paper utilizes a unique micro-level dataset. This dataset originates from a domestic public fund management company and encompasses transaction records of individual clients from 2018 to 2020. This paper categorizes these transactions into two distinct channels according to the types of fund trading institution: Fintech channels and traditional channels. To better address endogeneity problem, this paper further standardizes a transaction data set of individual investors of public fund who hold positions in both traditional channels and Fintech channels. Empirical analysis confirms the theoretical predictions, revealing a complex relationship between the utilization of Fintech and investment performance. This paper finds that while Fintech channels positively impact investment returns by reducing transaction costs (increasing returns by approximately 0.6%), they also contribute to a surge in irrational trading behaviors. This escalation of irrational trading leads to an approximate loss of 2.4% in returns, ultimately resulting in worse investment performance. Further analysis reveals an interesting dynamic concerning the degree of investor irrationality. Among investors with different degrees of irrationality, there are significant differences in the impact of channels on returns. For more rational investors, the difference in returns between the two channels is nearly zero, neither statistically nor economically significant. As the degree of irrationality increases, the difference in returns between the two channels gradually widens. For the most irrational investors, the difference in returns between the two channels reaches 0.9% (single interest annualized 10.8%), and is significant at the 1% level. The findings of this paper generally exist in different types of investor groups, including groups with different wealth levels, genders and ages. This paper provides fresh empirical evidence regarding the impact of Fintech on investors. While the development of Fintech channels has undoubtedly facilitated more convenient and cost-effective investment channels, the seemingly favorable development of Fintech does not help many individual investors improve their investment returns. Additionally, this paper underscores the importance of investor education to reduce irrational behaviors in investment decision-making. Given these findings, in the case of bounded rationality of investors, blindly pursuing the low-cost and convenience of trading, and increasing trading opportunities may lead investors to make more irrational behaviors which is not conducive to the improvement of social welfare and investor utility. On the contrary, moderate friction can help financial markets function better.
钟超杰, 赵淳, 高峰, 王天宇, 王倩. 金融科技改善你的基金投资了吗?——基于基金销售渠道的分析[J]. 金融研究, 2024, 527(5): 114-131.
ZHONG Chaojie, ZHAO Chun, GAO Feng, WANG Tianyu, WANG Qian. Does Fintech Improve Your Fund Investment?—Analysis Based on Fund Sales Channels. Journal of Financial Research, 2024, 527(5): 114-131.
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