MICHEL PIREU: Low levels of trust are bad news for the vitality of stock markets
A lack of trust has a negative effect on stock market participation. And right now, trust is in short supply in SA. The following is the abstract, extracts and conclusion from a paper by Luigi Guiso, Paola Sapienza and Luigi Zingales, entitled Trusting the Stock Market and published in The Journal of Finance, December 2008. Abstract: We study the effect that a general lack of trust can have on stock-market participation. In deciding whether to buy stocks, investors factor in the risk of being cheated. The perception of this risk is a function of the objective characteristics of the stocks and the subjective characteristics of the investor. Less trusting individuals are less likely to buy stock and, conditional on buying stock, they will buy less … we find evidence consistent with lack of trust being an important factor in explaining limited participation. Extracts: For many people, especially people unfamiliar with finance, the stock market is not intrinsically different from the th...
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