The behavior of French retail investors : issues within the MiFID directive.

Summary We study the behavior of individual investors in the financial markets by combining MiFID questionnaire responses and bank data from over 98,000 customers of a major European bank. First, we study participation in equity markets. We show that customers' risk tolerance and self-assessed loss attitudes are strong predictors of equity investment while controlling for classical determinants. Then, within the framework of mental accounting, we create a typology of mental goals and show that clients' financial decisions are consistent with their mental goals. Finally, we analyze the behavior of investors who directly hold at least one foreign stock. We show that they hold more diversified stock portfolios than domestic investors. These sophisticated investors are more risk-tolerant, less loss-sensitive and more financially literate but are subject to home bias.