Abstract
Information search is costly for private households, especially in relation to their wealth. This paper investigates how retail customers react to free portfolio reporting—and thus reduced search costs—in a unique experimental setting. A large German direct bank sends portfolio reports to 10,000 customers while maintaining a control group of equal size and structure that receives no reports. Analyzing demographics as well as detailed portfolio and trade data, we find that gender, wealth, trade frequency, risk tolerance, and diversification drive the interest in portfolio information. Reading a portfolio report also triggers trading actions; thus, investors seem to appreciate the reduced information costs and act on the information. In addition to contributing to the financial literature on households’ information acquisition, this study derives valuable implications for financial institutions regarding communications and services for their customers.
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Notes
For a study of German branch bank retail customers, see Blüthgen et al. (2007).
The bank’s customer segmentation is more detailed than the five (aggregated) segments we use in this paper, but this information cannot be reported due to confidentiality agreements.
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We thank the anonymous referee for his constructive comments, which helped us a great deal in improving the paper.
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Appendix
Number of investors reading a report for the first time and date
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Gerhardt, R., Meyer, S. The effect of personal portfolio reporting on private investors. Financ Mark Portf Manag 27, 257–273 (2013). https://doi.org/10.1007/s11408-013-0214-9
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DOI: https://doi.org/10.1007/s11408-013-0214-9