TY  - JOUR
AU  - Guiso,Luigi
AU  - Sapienza,Paola
AU  - Zingales,Luigi
TI  - Trusting the Stock Market
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11648
PY  - 2005
Y2  - October 2005
UR  - http://www.nber.org/papers/w11648
L1  - http://www.nber.org/papers/w11648.pdf
N1  - Author contact info:
Luigi Guiso
Axa Professor of Household Finance
Einaudi Institute for Economics and Finance
Via Sallustiana 62 - 00187
Rome, Italy
Fax: 39 06  4792 4858
E-Mail: luigi.guiso@eief.it

Paola Sapienza
Kellogg School of Management
Northwestern University
2001 Sheridan Road, Evanston, IL 60208
Tel: 847/491-7436
Fax: 847/491-5719
E-Mail: paola-sapienza@northwestern.edu

Luigi Zingales
Booth School of Business
The University of Chicago
5807 S. Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-3196
Fax: 773/834-2081
E-Mail: luigi.zingales@ChicagoBooth.edu
AB  - We provide a new explanation to the limited stock market participation puzzle. In deciding whether to buy stocks, investors factor in the risk of being cheated. The perception of this risk is a function not only of the objective characteristics of the stock, but also of the subjective characteristics of the investor. Less trusting individuals are less likely to buy stock and, conditional on buying stock, they will buy less. The calibration of the model shows that this problem is sufficiently severe to account for the lack of participation of some of the richest investors in the United States as well as for differences in the rate of participation across countries. We also find evidence consistent with these propositions in Dutch and Italian micro data, as well as in cross country data.
ER  -