Exploring Research on Consumer Finance, Crypto, and Private Equity

There is a huge range of factors that can impact our investment decisions, whether we realize it or not, from our level of financial literacy to our political affiliations. This is borne out in research conducted by today’s guest Professor Antoinette Schoar, the Stewart C. Myers-Horn Family Professor of Finance at MIT Sloan. Today, Antoinette joins us to share her insights and challenge conventional wisdom on various topics from target date funds to cryptocurrencies. Tuning in, you’ll learn about the transformative impact of target date funds on investment behaviours and asset allocation, before delving into the subject of financial literacy and financial advisors. Antoinette also sheds light on the unique dynamics of crypto trading and breaks down why retail investors' strategies in crypto differ significantly from those in traditional markets. We also discuss the complexities of private equity and venture capital, focusing on why these asset classes might not be suitable for retail investors due to high barriers and risks. Our conversation also covers the critical role of regulation in maintaining market stability and protecting investors. Join us for a thought-provoking discussion that promises to deepen your understanding of financial markets and enhance your investment decisions!

Key Points From This Episode:

(0:00:18) An introduction to today's guest, Antoinette Schoar, and her extensive research.

(0:03:44) The rise of target date funds in the American retirement system: how it’s affected asset allocation and trading behaviour of retail investors.

(0:09:39) The impact of target date funds: how they have affected mutual fund flows, arbitrage opportunities, market efficiency, the elasticity of aggregate demand, and trend-chasing anomalies.

(0:16:48) The influence of individual beliefs, like political affiliation, on financial decision-making and portfolio adjustments, and how to counteract it.

(0:21:54) Perceptions of risk in housing investments: how this affects the rent versus buy decision, what changes people’s housing risk perceptions, and how to make better housing decisions.

(0:29:29) Findings from Antoinette’s study on financial advisors and their effectiveness at undoing bias in their prospective clients.

(0:33:51) How investors' prior beliefs affect their receptiveness to receiving financial advice and why better financial literacy is essential.

(0:41:38) What consumers need to know about advisor compensation structures and what they should look for when seeking out financial advice.

(0:47:05) How Antoinette’s students motivated her to research cryptocurrency and teach it.

(0:49:40) Antoinette’s insights on the applications of cryptocurrency and blockchain, and some of the surprising positive outcomes from the rise in cryptocurrency.

(0:52:13) The trading behaviours of retail investors in cryptocurrencies compared to traditional asset classes.

(0:57:30) An analysis of the Terra Luna collapse explaining the systemic issues and resulting financial impact on smaller investors.

(01:02:14) The broader implications of cryptocurrency trading and the need for regulatory oversight to protect investors.

(01:06:05) An overview of the challenges and risks of investing in private equity and venture capital for retail investors.

(01:11:56) Antoinette’s reflections on success, professional goals, and the broader impact of research on financial markets and investor behaviour.

Links From Today’s Episode:

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/ 

Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/

Rational Reminder on X — https://x.com/RationalRemind

Rational Reminder on YouTube — https://www.youtube.com/channel/

Rational Reminder Email — info@rationalreminder.caBenjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/ 

Benjamin on X — https://x.com/benjaminwfelix

Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/

Cameron Passmore — https://www.pwlcapital.com/profile/cameron-passmore/

Cameron on X — https://x.com/CameronPassmore

Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/

Antoinette Schoar — https://mitsloan.mit.edu/faculty/directory/antoinette-schoar

Monika Piazzesi — https://economics.stanford.edu/people/monika-piazzesi

Papers From Today’s Episode: 

‘Belief Disagreement and Portfolio Choice’ — https://www.nber.org/papers/w25108

‘Credit Supply and House Prices: Evidence from Mortgage Market Segmentation’ — https://www.nber.org/papers/w17832

‘Retail Investors’ Contrarian Behavior Around News, Attention, and the Momentum Effect’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3544949 ‘Anatomy of a Run: The Terra Luna Crash’ — https://www.nber.org/papers/w31160