Female Investors and Securities Fraud: Is the Reasonable Investor a Woman?

Abstract

This paper extends existing scholarship that questions the existing materiality standard used under Rule 10b-5 (and elsewhere in U.S. securities regulation) and its touchstone notion of the reasonable investor. Specifically, the paper asks and answers a seemingly straightforward, yet provocative, question: Is the reasonable investor a woman? The paper then preliminarily explores the potential significance of its key findings - that women and men exhibit different investment behaviors and achieve different investment outcomes, and that the resulting female investor profile is closer to existing conceptions of the reasonable investor than the resulting male investor profile.

As women become larger players in the securities markets, it may be comforting to know that they are relatively well protected by existing conceptions of the reasonable investor. However, the knowledge that women are not completely protected by these existing conceptions and that men are less well protected than women under the current reasonable investor paradigm gives us pause and forces us to reconsider inaction. To that end, this paper continues an ongoing academic and practical conversation about when changes in investor protection should be undertaken and how those changes can best be made if they are to be undertaken - not just for the benefit of women or men, but for the benefit of all underprotected investors.

Keywords: materiality, reasonable investor, female investor, male investor, sex, gender, 10b-5, securities, fraud

JEL Classification: G19, G29, G39, K22, K40, K42