Visual Finance: The Pervasive Effects of Red on Investor Behavior

59 Pages Posted: 27 Jun 2017 Last revised: 14 Mar 2019

See all articles by William J. Bazley

William J. Bazley

University of Kansas

Henrik Cronqvist

University of Miami - Department of Finance

Milica Milosavljevic Mormann

Southern Methodist University (SMU) - Marketing Department

Date Written: March 13, 2019

Abstract

Visual communication of financial information is commonplace and involves numerous facets, such as the use color. However, perception of color influences behavior. Through eight experiments, including a consequential stock trading task, we show that using red color to represent financial data impacts individuals' risk preferences, expectations of future stock returns, and trading decisions. The effects are not present in colorblind individuals and are muted in China, where red represents prosperity. Salience effects do not drive the findings. Overall, we demonstrate that simple perceptual processes influence complex investor behavior, which is important given society's increasing reliance on visual communication.

Keywords: Color psychology, experimental finance, household finance

JEL Classification: G11, G40, G41

Suggested Citation

Bazley, William J. and Cronqvist, Henrik and Mormann, Milica Milosavljevic, Visual Finance: The Pervasive Effects of Red on Investor Behavior (March 13, 2019). Swedish House of Finance Research Paper No. 17-16; SMU Cox School of Business Research Paper No. 18-4; University of Miami Business School Research Paper No. 2992812. Available at SSRN: https://ssrn.com/abstract=2992812 or http://dx.doi.org/10.2139/ssrn.2992812

William J. Bazley

University of Kansas ( email )

3143 Capitol Federal Hall
1654 Naismith Drive
Lawrence, KS 66045
United States

Henrik Cronqvist (Contact Author)

University of Miami - Department of Finance ( email )

5250 University Drive
314-E Jenkins Building
Coral Gables, FL 33146
United States
(305) 284-9482 (Phone)

HOME PAGE: http://sites.google.com/site/henrikcronqvist/

Milica Milosavljevic Mormann

Southern Methodist University (SMU) - Marketing Department ( email )

United States

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