What Drives Robo-Advice?

21 Pages Posted: 19 Apr 2021

See all articles by Bernd Scherer

Bernd Scherer

EDHEC Business School - Department of Economics & Finance

Sebastian Lehner

University of Wuppertal - Schumpeter School of Business and Economics

Date Written: March 19, 2021

Abstract

The promise of robo-advisory firms is to provide low cost access to diversified portfolios built in accordance with the academic literature on normative portfolio choice. We investigate the latter claim. How much normative advice does robo-advice contain? For this purpose we web-scrap portfolio recommendations for 151200 investor types (input combinations from an online questionnaire) for one of the largest US robo-advisors. Our results show that the type of investment goal and the length of time horizon are dominating inputs with significant influence on recommended equity allocations. Normative advice in the form of Merton type hedging demands plays no role at all.

Keywords: Robo-Advisory, Household Finance, Behavioral Finance, Portfolio Theory

JEL Classification: G11, G4, G5

Suggested Citation

Scherer, Bernd and Lehner, Sebastian, What Drives Robo-Advice? (March 19, 2021). Available at SSRN: https://ssrn.com/abstract=3807921 or http://dx.doi.org/10.2139/ssrn.3807921

Bernd Scherer (Contact Author)

EDHEC Business School - Department of Economics & Finance ( email )

France

Sebastian Lehner

University of Wuppertal - Schumpeter School of Business and Economics ( email )

Rainer-Gruenter-Str. 21
Wuppertal, 42119
Germany

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