Institutional Quality, Trust, and Stock Market Participation: Learning to Forget

Abstract

We explore the relations among institutional quality, households’ level of trust, and stock market participation. We find that institutional quality has a significant impact on both trust and participation. The individual level of trust significantly affects participation, but trust plays a small role in the effect of institutional quality on participation. Further, we demonstrate that immigrants are affected by the institutional quality of both their country of residence and their home country, and that education emerges as an important learning factor in immigrants’ adaptation to new institutional environments.

Keywords: Households’ stock ownership, institutional quality, trust, immigration, direct and indirect effects, learning ability

JEL Classification: C13, G11