Advanced Search
MyIDEAS: Login

A trust-driven financial crisis. Implications for the future of financial markets

Contents:

Author Info

  • Luigi Guiso

Abstract

The financial crisis has brought to light diffuse opportunistic behaviour and some serious frauds.Because of this trust towards banks, bankers, brokers and the stock market has collapsed to unprecedented levels and there are so far no signs of recovery. This paper uses survey-based information to document the collapse of trust, show its link to the emergence of frauds in the financial industry and discuss its consequences for the demand of financial instruments, investors portfolios and more generally investors reliance on financial markets. It argues that unless serious changes happen in the behaviour of the financial industry, the move towards safer portfolios and away from ambiguous securities that lack of trust entails, will have adverse effects on the availability and cost of equity financing. Accordingly a number of proposals to restore trust are discussed. Their common feature is to restore trust – a belief – by limiting the scope for opportunistic behaviour through a transfer of power from financial intermediaries to investors.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://cadmus.eui.eu/dspace/bitstream/1814/13657/3/ECO_2010_07.pdf
File Function: main text
Download Restriction: no

Bibliographic Info

Paper provided by European University Institute in its series Economics Working Papers with number ECO2010/07.

as in new window
Length:
Date of creation: 2010
Date of revision:
Handle: RePEc:eui:euiwps:eco2010/07

Contact details of provider:
Postal: Badia Fiesolana, Via dei Roccettini, 9, 50016 San Domenico di Fiesole (FI) Italy
Phone: +39-055-4685.982
Fax: +39-055-4685.902
Web page: http://www.eui.eu/ECO/
More information through EDIRC

Related research

Keywords:

Other versions of this item:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Markus Knell & Helmut Stix, 2009. "Trust in Banks? Evidence from normal times and from times of crises," Working Papers 158, Oesterreichische Nationalbank (Austrian Central Bank).
  2. Pierre Cahuc & Andrei Shleifer & Philippe Aghion & Yann Algan, 2009. "Regulation and Distrust," Sciences Po publications 14648, Sciences Po.
  3. Luigi Guiso & Tullio Jappelli, 2009. "Financial Literacy and Portfolio Diversification," CSEF Working Papers 212, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  4. Tullio Jappelli, 2010. "Economic Literacy: An International Comparison," Economic Journal, Royal Economic Society, vol. 120(548), pages F429-F451, November.
  5. Shawn Cole & Xavier Giné & Jeremy Tobacman & Petia Topalova & Robert Townsend & James Vickery, 2009. "Barriers to household risk management: evidence from India," Staff Reports 373, Federal Reserve Bank of New York.
  6. Carlin, Bruce Ian & Dorobantu, Florin & Viswanathan, S., 2009. "Public trust, the law, and financial investment," Journal of Financial Economics, Elsevier, vol. 92(3), pages 321-341, June.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Enzo Dia, 2011. "Uncertainty, trust, and the regulation of the banking industry," International Review of Economics, Springer, vol. 58(2), pages 213-228, June.
  2. Monti, Marco & Pelligra, Vittorio & Martignon, Laura & Berg, Nathan, 2014. "Retail investors and financial advisors: New evidence on trust and advice taking heuristics," Journal of Business Research, Elsevier, vol. 67(8), pages 1749-1757.
  3. Algan, Yann & Cahuc, Pierre, 2014. "Trust, Growth, and Well-Being: New Evidence and Policy Implications," Handbook of Economic Growth, in: Handbook of Economic Growth, edition 1, volume 2, chapter 2, pages 49-120 Elsevier.
  4. Georgarakos, Dimitris & Inderst, Roman, 2014. "Financial Advice and Stock Market Participation," CEPR Discussion Papers 9922, C.E.P.R. Discussion Papers.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eui:euiwps:eco2010/07. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marcia Gastaldo).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.