Trusting the Stock Market
55 Pages Posted: 23 Mar 2007
There are 4 versions of this paper
Trusting the Stock Market
Trusting the Stock Market
Trusting the Stock Market
Date Written: January 17, 2007
Abstract
We study the effect that a general lack of trust can have on stock market participation. In deciding whether to buy stocks, investors factor in the risk of being cheated. The perception of this risk is a function not only of the objective characteristics of the stocks, but also of the subjective characteristics of the investor. Less trusting individuals are less likely to buy stock and, conditional on buying stock, they will buy less. We find evidence consistent with these propositions in Dutch and Italian micro data, as well as in cross country data. All the evidence suggests that lack of trust could be an important factor in explaining the limited participation puzzle, especially among more wealthy investors.
Keywords: Trust, stock market participation
Suggested Citation: Suggested Citation
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