Financial Fraud and Investor Awareness
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| Sunny Huang | |
| Thursday 22 November 2018 at 4:00 - 5:00 pm (Hong Kong time, GMT +8) | |
|
Lecture Theater E, Main Building, HKUST |
Abstract
In our experiment and survey, we find that investors, especially risk-averse ones, become less likely to invest in fraudulent financial products with unrealistically high returns after receiving an eye-opening education program. This suggests that investors can be exploited by financial fraud due to their unawareness of the underlying high risks associated with high returns. We build a model in which a firm strategically chooses whether to offer a fraudulent product to naive investors. Education reduces the fraction of naive investors, which then attenuates or even eliminates the firm's incentive to commit financial fraud. We then study the roles of price (rate-of-return) competition, information disclosure, and regulatory instruments, such as interest rate ceiling, legal punishment, and public education program, and find that none of them guarantees an improvement in investors' welfare.
About the Speaker
Yangguang (Sunny) Huang is Assistant Professor in the Department of Economics and IEMS Faculty Associate at HKUST. He received his Ph.D. in Economics from University of Washington in 2016 and joined HKUST afterward. His research areas are Industrial Organization and applied Microeconomics. The theme of his research is combining economic model and structural econometrics to study policy-oriented topics. His current research projects tackle problems in procurement, public resource allocation, corruption, and market design.
This seminar is co-organised with the Department of Economics, HKUST.
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