Finance Seminar with Markku Kaustia, Aalto University School of Business
The Department of Finance is proud to announce the upcoming seminar with Markku Kaustia, Aalto University School of Business.
Markku Kaustia will present
Optimism and Skill in the Finance Industry
We measure financial advisers’ sophistication using data from professional exam scores and other variables. We find that less sophisticated advisors have higher return expectations for the general stock market. The nature of this optimism seems dispositional, rather than strategic, or varying with recent market conditions. We hypothesize, and find evidence to support the idea, that unconscious overoptimism acts as a substitute for skill in the production function of advisor services. Over the long-term, skill dominates in advisor career performance, so the substitution effect mostly helps less capable advisers in the earlier stages of their careers, including finding employment.