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Financial information allows investors to condition the portfolio allocation on valuable signals on asset returns. Therefore investors have incentives to spend on information gathering. If interpreted correctly, information signals allow investors to obtain higher returns and more efficient portfolios. Since information is costly, wealthier and more risk tolerant investors have stronger incentives to invest in information. Overconfident investors who overstate the value of the information still obtain higher average returns but end up with less efficient portfolios. We study these implications using two unique surveys of customers of a leading Italian bank, with portfolio data and measures of individual investment in financial information. We find that investment in information is positively associated with returns to financial wealth and negatively associated with the portfolio Sharpe ratio. Furthermore, the latter falls with proxies of overconfidence. We relate these findings to the wealth inequality debate.

SUMMARY
Using the Italian Survey of Household Income and Wealth, we study whether the drop in interest rates following the Great Recession was associated with an increase in consumption for households with Adjustable Rate Mortgages (ARM) relative to those with Fixed Rate Mortgages (FRM). After the reduction in mortgage payments, consumption of ARM holders increases relative to FRM but the implied marginal propensity to consume is not statistically different from zero. We suggest three explanations for the weak consumption response to the income shock. First, cash-on-hand and debt heterogeneity may attenuate the consumption response. Second, borrowers believe that the income shock was short-lasting, and that interest rates would likely increase in the future, implying a small effect on consumption. Third, the shock is offset partly by a reduction in income from financial assets owned by mortgagors. The findings have implications for the conduct of monetary policy interventions and the credibility of the future path of interest rates, pass-through of monetary policy, and design of the mortgage market.