Investor Behaviour in the Age of Fintech: Crowdfunding, Copy Trading and Robo-Advisors

Lead Research Organisation: University of Essex
Department Name: Economics


Fintech (financial technology) describes a fairly recent phenomenon, where technological innovation is used to provide or improve financial services such as banking, retail investment, or borrowing. While Fintech can make the provision of financial services more efficient than before, it can also allow for new possibilities that were infeasible or too costly before. This project will focus on three forms of Fintech: crowdfunding, social trading, and robo-advising.

Crowdfunding is the provision of funds by a large number of individuals to other individuals, groups, organisations or firms via the internet, typically by providing loans or selling shares of a business. For the past few years, the volume of crowdfunding grew by more than 100% annually (Massolution 2015). In the start-up sector, it is already seen by some as the most important external funding source. What is puzzling is that crowdfunding is a new investment opportunity, but arguably conventional investments are at least as good in terms of risk and return profile. For example, stocks tend to provide a higher expected return, government bonds can be cashed in more easily, and bank deposits are safer. Yet the crowdfunding growth rates indicate that it gives savers something that they do not get from conventional investments. Projects 1 and 2 will investigate the motivations of crowdfunders: Why do they invest in crowdfunding, and what in their view is the advantage over conventional investments? Project 2 investigates a specific motivation, whether having a positive social or environmental impact by crowdfunding projects plays a role, or whether only financial risk and return considerations play a role as suggested by conventional finance theory.

Another focus of our research projects is to understand how decisions and outcomes differ because of these Fintech innovations; project 3 investigates whether investors suffer from a consumption-preference investment bias, where they invest in firms whose products they like but not necessarily those whose products are liked by the majority of consumers. If this is the case, then crowdfunding, where many investors decide independently which firms to fund, might provide a better capital allocation than e.g. venture capital financing, where only a few large investors decide. Hence, crowdfunding might democratise start-up funding decisions and improve welfare because investments go into the right firms, but there is no empirical evidence about this hypothesis yet.

Projects 4 and 5 investigate copy trading, where some investors can copy the trades of other (historically successful) traders. Previous research has shown that copy trading leads to more risky investment choices, but it is not clear why people choose to copy others; project 4 addresses this question. Project 5 asks whether the knowledge of being copied, or the rewards given for it, changes the investment behaviour of those being copied, and why. If this is the case, then copy trading might reduce welfare among copy traders because they risk their savings to a greater degree than they otherwise would. Thus, our research has implications for regulators who want to protect consumers, and for trading platforms who might want to protect their customers in order to retain them.

Finally, project 6 investigates robo-advising, which are algorithms that recommend investments and portfolios based on investor preferences. Historically, a similar purpose was served by wealth managers, who, however, would only offer their services to relatively wealthy clients, whereas robo-advisers can reduce costs and are therefore more easily accessible. The main questions are which characteristics of robo-advisers lead to them being accepted/adopted, and which kind of retail investors adopt them. A major welfare question is whether robo-advising leads to better investment decisions (e.g., more diversification, fewer investment biases).

Planned Impact

There are three sets of direct beneficiaries from our research project: policy makers, such as central banks and regulatory bodies, Fintech firms and consumer advocacy groups. Potential impact includes changes in understanding of consumer engagement with Fintech and changes in regulatory practices by policy makers, changes in how Fintech platforms operate, and novel guidance for potential users of Fintech platforms given by consumer advocacy groups. We hope that these changes will indirectly lead to improvements in welfare of potential users of Fintech platforms.

Several central banks such as the Bank of England (BoE) or the European Central Bank express interest in better understanding the implications of Fintech for users and financial systems and are themselves pursuing research programmes in this area. For instance, the BoE takes "a keen interest in exploring how innovation and developments in Fintech might support its mission to promote the good of the people of the UK by maintaining monetary and financial stability". Similarly, the European Banking Authority "seeks to foster consumer protection in financial services across the EU by identifying and addressing detriment consumers may experience, or are at risk of experiencing, in their dealings with financial firms." In addition, regulatory and supervisory institutions such as the Financial Conduct Authority, the Competition and Markets Authority, and the Prudential Regulation Authority in the UK or the EU's "Directorate General for Financial Stability, Financial Services and Capital Markets Union" stand to benefit from the findings of this research project. Some institutions have set up dedicated Fintech policy platforms such as the BoEs Fintech Hub or the EU FinTech Lab. There are at least two topics of interest for this group of potential users: Firstly, our project seeks to understand how investors engage with certain Fintech platforms and whether behavior is different to more traditional forms of investment. Secondly, our project aims to be a first step towards a better understanding of the consequences of Fintech platforms for societies at large. These questions are highly relevant to policy makers and our evidence based approach will help policy makers to guide their optimal regulatory approach towards Fintech platforms and to fine tune it to the particular features of this sector.

The second group of potential beneficiaries encompasses Fintech firms active in the fields of social trading and crowdfunding. Understanding how customers engage with Fintech will potentially allow them to hone their business model and alter their platforms to integrate these findings. Recently, Environmental, Social and Corporate Governance (ESG) has become a guiding principle for many Fintech firms. As consumer protection, i.e. having the best interest of consumers in mind, has become an integral of ESG, it is of great interest for Fintech firms to learn about any potential negative implications of certain trading mechanisms and develop tools to mitigate these. Since negative experiences are usually associated with users leaving Fintech platforms, embracing ESG from a consumer protection perspective will also have positive implications for the profitability and long-term survival of Fintech firms.

Consumer Advocacy Groups such as "Citizens Advice" and "Which?" and international umbrella organizations such as the European Consumer Organization BEUC constitute the third group of beneficiaries. These groups provide advice and guidance to potential consumers of products and services, including financial services, and advocate for policies enhancing consumer welfare. Such groups have a natural interest to understand the advantages and pitfalls of Fintech platforms in comparison to more traditional investment vehicles. Accordingly, our project will allow Consumer Advocacy Groups to understand the particular problems users of Fintech platforms may face and give appropriate advice.


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Description Research collaboration 
Organisation University of Bremen
Country Germany 
Sector Academic/University 
PI Contribution Research collaboration with one research paper finished so far, see publications. We did the research together. I did a large part of the research (planning, design, implementation, analysis, writing).
Collaborator Contribution We did the research jointly together. They also made contact with the fintech firm Rocket, who run the crowdfunding platforms Green Rocket and Home Rocket, which we studied in our research. They got them to sign up. We needed the cooperation of that firm to get their users to participate in the experimental research, so this was very important.
Impact Siemroth C, Hornuf L, (2021). Do Retail Investors Value Environmental Impact? A Lab-in-The-Field Experiment with Crowdfunders. SSRN Electronic Journal,
Start Year 2020
Description research covered by fintech news site 
Form Of Engagement Activity A magazine, newsletter or online publication
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Public/other audiences
Results and Impact Research featured on an industry news portal
Year(s) Of Engagement Activity 2021