Information diversity and household portfolio diversification

Abstract

Abstract This study focuses on the role of information diversity in household portfolio diversification, using data from the China Household Financial Survey. We first propose a novel information diversity index which incorporates both information channels and information fields (i.e., information topics people pay attention to). Subsequently, empirical tests demonstrate that information diversity significantly affects households' participation in stock, fund and insurance markets. We further construct a household portfolio diversification index and find that information diversity also has a significant positive effect on portfolio diversification. Furthermore, a positive relationship between information diversity and portfolio returns is confirmed. Finally, this study identifies the crucial role of economic and financial information; if this information is lacking, information diversity does not have the same positive impact in some cases.