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Journal Articles American Economic Review Year : 2009

Measuring the Financial Sophistication of Households

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John Y. Campbell
  • Function : Author
Paolo Sodini
  • Function : Author

Abstract

This paper constructs an index of financial sophistication that, in comprehensive data on Swedish households, best explains a set of three investment mistakes: underdiversification, risky share inertia, and the tendency to sell winning stocks and hold losing stocks (the disposition effect). The index of financial sophistication increases strongly with financial wealth and household size, and to a lesser extent with education and proxies for financial experience. The index is strongly positively correlated with the share of risky assets held by a household.

Dates and versions

hal-00459687 , version 1 (24-02-2010)

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Laurent-Emmanuel Calvet, John Y. Campbell, Paolo Sodini. Measuring the Financial Sophistication of Households. American Economic Review, 2009, Vol.99,n°2, pp.393-398. ⟨10.1257/aer.99.2.393⟩. ⟨hal-00459687⟩

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