Influence and Inspiration of Asymmetric Information on Individual Investor Behavior

Abstract

Information asymmetry is a pervasive phenomenon in the financial market. For individual investors, this imbalance usually results in making them vulnerable in the investment decision-making processes, thus raising the challenges as well as risks that characterize their participation in the market. Unlike financial institutions that have access to extensive resources and research capabilities, the lack of reliable sources of data and knowledge about how to interpret and analyze available information add layer of complexity for individual investors to acquire full and sufficiently accurate information, which increases risks for them during investment activities compared with financial institutions. Without proper understanding of financial concepts and analysis techniques, they may struggle to make informed decisions in an environment characterized by asymmetric information. Thus, according to the current literature on information asymmetry and individual investor behavior, this paper sorts out and summarizes the viewpoints and conclusions of each paper. On this basis, this paper provides a series of suggestions for individual investors to have better insight of this financial phenomenon and make reasonable investment in the financial market environment with asymmetric information.