Information Gaps Limiting Investing

The Barbadian financial market has not always behaved as theory would suggest, especially when considering most investment products. For example, fixed income investments holdings decrease when theory suggests that they should increase; the volume of stock market trading may have a stronger tie to the attractiveness of the market generally rather than economic activity; and, the mutual fund market is heavily influenced by government incentives.

One theory explaining the disconnect between investment theory and observed market trends in Barbados could be that insufficient information results in suboptimal wealth allocation. Our research uncovered four information gaps that influence potential investors’ demand for investment products:

  • Limited understanding of features of financial instruments;
  • Limited information on all features of financial instruments;
  • Lack of trust in financial institutions; and,
  • The inability to comfortably asses risk and return.

These gaps lead to dissatisfaction with local investment options, apprehensive and risk-averse attitudes to investing, and a lack of trust in financial institutions. Combined, they result in an overall low appetite for investing in Barbados. To stimulate potential investors’ appetites, financial institutions must repair existing information gaps by ensuring that their investment information is easy to understand, comprehensive and clearly communicated, thus building confidence in their organisation and investing generally.

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