Abstract

http://ssrn.com/abstract=872747
 
 

References (44)



 
 

Citations (128)



 


 



Trusting the Stock Market


Luigi Guiso


Einaudi Institute for Economics and Finance (EIEF)

Paola Sapienza


Northwestern University - Kellogg School of Management - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Luigi Zingales


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); University of Chicago - Polsky Center for Entrepreneurship; European Corporate Governance Institute (ECGI)

October 2005

CEPR Discussion Paper No. 5288

Abstract:     
We provide a new explanation to the limited stock market participation puzzle. 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 stock, 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. The calibration of the model shows that this problem is sufficiently severe to account for the lack of participation of some of the richest investors in the United States as well as for differences in the rate of participation across countries. We also find evidence consistent with these propositions in Dutch and Italian micro data, as well as in cross-country data.

Number of Pages in PDF File: 62

Keywords: Stock market participation, trust, portfolio choice

JEL Classification: D1, D8

working papers series





Date posted: December 29, 2005  

Suggested Citation

Guiso, Luigi and Sapienza, Paola and Zingales, Luigi, Trusting the Stock Market (October 2005). CEPR Discussion Paper No. 5288. Available at SSRN: http://ssrn.com/abstract=872747

Contact Information

Luigi Guiso (Contact Author)
Einaudi Institute for Economics and Finance (EIEF) ( email )
Via Sallustiana 62
Rome, 00187
Italy
+39 06 4792 4858 (Phone)
+39 06 4792 4872 (Fax)
HOME PAGE: http://www.eief.it/faculty-visitors/faculty-a-z/luigi-guiso/
Paola Sapienza
Northwestern University - Kellogg School of Management - Department of Finance ( email )
Evanston, IL 60208
United States
847-491-7436 (Phone)
847-491-5719 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Luigi Zingales
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-3196 (Phone)
773-834-2081 (Fax)

Chicago Booth School of Business Logo

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
University of Chicago - Polsky Center for Entrepreneurship
Chicago, IL 60637
United States
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Feedback to SSRN


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References:  44
Citations:  128

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