Investor self-selection: evidence from a mutual fund survey

Authors

  • Gordon J. Alexander,

    1. Carlson School of Management, University of Minnesota, Minneapolis, MN 55455, USA
    2. Office of Economic Analysis, Securities and Exchange Commission, Washington, DC 20549, USA
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  • Jonathan D. Jones,

    1. Risk Management Division, Office of Thrift Supervision, Washington, DC 20552, USA
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  • Peter J. Nigro

    Corresponding author
    1. Economic and Policy Analysis, Office of the Comptroller of the Currency, Washington, DC 20219, USA
    • Economic and Policy Analysis, Office of the Comptroller of the Currency, Washington, DC 20219, USA
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Abstract

Using survey data on a random sample of 2000 mutual fund investors, we classify investors by their level of financial literacy and their place of mutual fund purchase. After using a probit model to separately estimate the determinants of an investor's choice of distribution channel and level of financial literacy, a bivariate probit model that jointly endogenizes an investor's level of financial literacy and choice of distribution channel is estimated. Strong evidence that an investor's level of financial literacy and choice of distribution channel are jointly determined is found. Thus, the hypothesis put forth in this paper, that investors self-select into different distribution channels based on their overall level of financial literacy, is supported by the data. © 1997 John Wiley & Sons, Ltd.

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