Comment, Regulation and Investors' Trust in the Securities Markets
13 Pages Posted: 24 Oct 2002
Date Written: September 23, 2002
This comment focuses on the relationship between investors' trust and government market regulation. The costs of regulation may be a barrier to issuers; however, when market prices rise, government regulation relaxes, and when prices fall, regulation becomes stricter. Regulated financial institutions benefit from regulation, by offering issuers and investors government support in their efforts to gain investors' trust and for other reasons. Regulation may be less meaningful to investors during rising markets and more meaningful after a crash because investors use prices as a surrogate for market integrity. Investors do not have appeared to have fled the markets in the last thirty years as they did in the 1930s, possibly because some have been locked into investments for tax benefits, and some have fled the equity markets for banks. Thus, investors do not react to falling prices as they did in the past. If investors' trust wanes, a change to a corporate culture of honesty may restore it.
Keywords: investor trust, markets, securities regulation
JEL Classification: K22, K2
Suggested Citation: Suggested Citation