Robo-advice and portfolio choice

Posted: 18 Oct 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: October 15, 2021

Abstract

This paper offers cross-sectional and data-intensive insights into Robo-advisory portfolio structures. For this purpose, we scrape portfolio recommendations for 16 German Robo-advisors. Collectively our sample accounts for about 78% of assets in the German Robo-advisory market. We analyze about 243.000 pairs of recommended portfolios and their corresponding client characteristics. Our results show that current Robo-advice offers limited individualization. Variables that matter in modern portfolio-choice like the amount and nature (beta) of human capital or shadow assets are largely ignored. Instead, portfolio recommendations are designed to meet investor preconceptions or the regulator's understanding of portfolio choice. While ensuring consumer trust and regulatory approval makes business sense, it also limits the economic benefits of Robo-advisors.

Keywords: Robo-advice, trust, portfolio choice

JEL Classification: G11

Suggested Citation

Scherer, Bernd and Lehner, Sebastian, Robo-advice and portfolio choice (October 15, 2021). Available at SSRN: https://ssrn.com/abstract=3943345

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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