HKUST IEMS Working Papers No. 2018-52
We study how investors are exploited by fraudulent financial products. These investors purchase financial products that are inconsistent with their risk attitudes, and in turn, their behaviors provide an incentive for firms to commit financial fraud. We then conduct experiments and surveys in Shenzhen, China to measure investors' risk preferences and the effect of an eye-opening financial education program. Participating in our education program significantly reduces investors' tendency to invest in fraudulent products, especially among those who are risk-averse. Therefore, compared to randomly assigning the education program to investors, targeting risk-averse investors will be more effective in fighting financial fraud.
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