Working Paper

The Display of Information and Household Investment Behavior

Abstract: I exploit a natural experiment to show that household investment decisions depend on the manner in which information is displayed. Israeli retirement funds were prohibited from displaying returns for periods shorter than twelve months. In this setting, the information displayed was altered but the accessible information remained the same. Using differences-in-differences design, I find that this change caused reduction in fund flow sensitivity to past returns, decline in trade volume, and increased asset allocation toward riskier funds. These results are consistent with models of limited attention and myopic loss aversion, and have important implications for households' accumulated wealth at retirement.

Keywords: Attention; Household Finance; Information Display; Myopic Loss Aversion; Salience;

JEL Classification: D14; G02; G11;

https://doi.org/10.17016/FEDS.2017.043

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2017-04

Number: 2017-043

Pages: 69 pages