Stock Market Literacy, Trust and Participation

Review of Finance, Forthcoming

48 Pages Posted: 17 Aug 2014 Last revised: 10 Sep 2014

See all articles by Adnan Balloch

Adnan Balloch

Massey University; Durham University Business School

Anamaria Nicolae

Durham University Business School

Dennis Philip

Durham University - Department of Economics and Finance

Date Written: August 16, 2014

Abstract

This paper studies the importance of stock market literacy and trust for stock ownership decisions. We find that these two distinct channels simultaneously explain not only the probability of participation, but, conditional on participation, also explain the share of investment in stocks. Once we account for stock market literacy, sociability is no longer significant for participation; what matters is literacy rather than sociability. Further, we observe that economic shocks and future expectations are key behavioral characteristics that explain a household's decision to invest in stocks. However, upon participation, a larger set of behavioral characteristics explains the level of stock investment.

Keywords: Financial literacy, Trust, Sociability, Stock market participation, Participation cost

JEL Classification: A13, D03, D12, G11

Suggested Citation

Balloch, Adnan and Nicolae, Anamaria and Philip, Dennis, Stock Market Literacy, Trust and Participation (August 16, 2014). Review of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2392747 or http://dx.doi.org/10.2139/ssrn.2392747

Adnan Balloch

Massey University ( email )

Wallace Street, Mount Cook
Wellington, 6021
New Zealand

Durham University Business School ( email )

Old Elvet
Mill Hill Lane
Durham, Durham DH1 3HP
United Kingdom

Anamaria Nicolae

Durham University Business School ( email )

Mill Hill Lane
Durham, dh1 3lb
United Kingdom

Dennis Philip (Contact Author)

Durham University - Department of Economics and Finance ( email )

Department of Economics and Finance
Mill Hill Lane
Durham, DH1 3LB
United Kingdom

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