Trusting the stock market

Luigi Guiso*, Paola Sapienza, Luigi Zingales

*Corresponding author for this work

Research output: Contribution to journalArticle

561 Scopus citations

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 of the objective characteristics of the stocks and the subjective characteristics of the investor. Less trusting individuals are less likely to buy stock and, conditional on buying stock, they will buy less. In Dutch and Italian micro data, as well as in cross-country data, we find evidence consistent with lack of trust being an important factor in explaining the limited participation puzzle.

Original languageEnglish (US)
Pages (from-to)2557-2600
Number of pages44
JournalJournal of Finance
Volume63
Issue number6
DOIs
StatePublished - Dec 1 2008

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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