The effect of financial literacy on portfolio diversification of investment managers

• Main Authors: Gomez, Vicente Martin L., Libunao, Cherlene S., Marquez, Jam Kevin E., Yang, Dan Patrick L.
• Format: text
• Language: English
• Published: Animo Repository 2010
• Subjects: Financial planners; Investment advisors; Accounting
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/14064
• Institution: De La Salle University

Most income-earners have undiversified portfolios. Financial institutions are meant to manage portfolios for these people, yet some people still prefer to keep their money out of circulation, owing to recent scandals creating mistrust in the market. Guiso and Jappelli (2008), based on a survey of bank clients, theorize that what drives the diversification problem is poor financial literacy in most people. Using their same instrument, we survey the population of portfolio management team members of an exclusive financial institution in the Philippines with the extracted indices of financial literacy and portfolio diversification expected to be much higher for them than for ordinary clients and statistically examine the variables to establish the existence of the literacy-diversification link. The results show a statistically significant effect of financial literacy on diversification and a high literacy mean for the institution, supporting the lack of diversification theory and encouraging people to invest in institutions and contribute to the economy.