The paper noted that fintech “promises to democratize the investment management sector and level-out the playing field,” by facilitating access to better savings and investment opportunities, and enabling more informed investment choices.
But in reality, these innovations can also intensify investor inequality, it said.
“For instance, fintech can allow sophisticated market players to acquire better data and formulate profitable trading strategies, while less sophisticated ones may lose out,” it said.
Indeed, among other things, the researchers find that “as financial technology improves, differences in financial returns and the proportion of risky assets of sophisticated versus unsophisticated investors grow.”
In other words, sophisticated investors benefit disproportionately from fintech improvements, growing their advantage in portfolio returns relative to less sophisticated investors.
“Advances in financial technology amplify inequalities in the two groups of investors if, at the same time, they do not reduce the investors’ sophistication…