Financial Fraud and Investor Awareness

Financial fraud refers to firms taking deceptive actions exploit investors, such as Ponzi schemes and running away with the money. The existence of many financially “illiterate” investors opens door for financial because these are likely be attracted by products that offer too-good-to-be-true returns. Our experiment survey suggest some unaware possible high-return products, justifying policy intervention. A simple eye-opening education program can reduce proportion naive which helps them make better decisions also reduces, if not eliminates, firms’ incentive commit fraud. Competition makes offering normal less profitable thus discourages from behaving honestly. Policy instruments interest rate ceilings, legal punishment, public programs, may trigger honest strategically shroud information. Consequently, policies cannot ensure an improvement in investors’ welfare.