Mismatch between investor preferences and financial services/products

Abstract

In a major peer-to-peer (P.2.P.) lending market in China, we observe that some investors choose not to use auto-investment service and stick to time-consuming manual investment. By analysing over 200 million pieces of data, we find that the do-it-yourself (D.I.Y.) investors pursue 1.20% higher annual return and five to seven months shorter maturity than the auto-investment service can offer. Indeed, D.I.Y. investors obtained 1.25% higher return than auto-investors, but they also took excessive risk. These results are confirmed by dual investors sample, who switch between D.I.Y. and auto-investment services. We also show that the results are not due to algorithm priority. We suggest that financial institutions provide more personalized services and products to accommodate investors with various target returns and risk attitudes.