Shaowei Shen

Date of Award

12-2020

Advisor(s)

Zhuo Huang

Second Advisor

Yi Tang

Abstract

Robo-advisors have surged in popularity in recent years and have been attracting more and more attention from both academia and industry. In this paper, we examine the factors that attribute to investors’ decision to adopt Robo-advisor and test how Robo-advisor affects investors’ trading behavior by using a unique account-level dataset from a major China’s financial institution.

We first compare the characteristics of users and non-users of Robo-advisor. We show that investors with more diversified portfolios and less assets under management, and female investors are more likely to invest in Robo-advisor-based products. We then contrast investors’ trading behavior before and after their adoption of Robo-advisor. We find that the adoption of Robo-advisor significantly reduces investors’ turnover ratio, whereby there is a negative relation between investors’ turnover rate and the adoption of Robo-advisor. Furthermore, we also notice that male investors as well as those holding less diversified portfolios trade less aggressively after they adopt Robo-advisor. These results are largely consistent with the empirical predictions of a major behavior bias, namely overconfidence.

This study is an early analysis of the effect of Robo-advisor on the investors’ trading behavior. It can render profound implications for academic research and real-world applications.

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