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Trust and trading volume

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  • Kim, Taejin

Abstract

This study theoretically investigates the influence of social trust on the trading volume in asset markets. Trust influences how an investor interprets new information supplied by other agents in the market when they decide their portfolio allocation. First, this study shows that the relationship between trust and trading volume is not monotonic. Trading volume is maximized at an intermediate level of trust and minimized at its extreme values. Moreover, the relationship between the trading volume and precision of public signals that investors may trust is not always negative.

Suggested Citation

  • Kim, Taejin, 2021. "Trust and trading volume," Economics Letters, Elsevier, vol. 207(C).
    • Handle: RePEc:eee:ecolet:v:207:y:2021:i:c:s0165176521002809
    DOI: 10.1016/j.econlet.2021.110003
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    References listed on IDEAS

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    1. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2008. "Trusting the Stock Market," Journal of Finance, American Finance Association, vol. 63(6), pages 2557-2600, December.
    2. Pevzner, Mikhail & Xie, Fei & Xin, Xiangang, 2015. "When firms talk, do investors listen? The role of trust in stock market reactions to corporate earnings announcements," Journal of Financial Economics, Elsevier, vol. 117(1), pages 190-223.
    3. Engelhardt, Nils & Krause, Miguel & Neukirchen, Daniel & Posch, Peter N., 2021. "Trust and stock market volatility during the COVID-19 crisis," Finance Research Letters, Elsevier, vol. 38(C).
    4. Wei, Chishen & Zhang, Lei, 2020. "Trust and Local Bias," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(7), pages 2211-2245, November.
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    Cited by:

    1. Jalan, Akanksha & Matkovskyy, Roman & Urquhart, Andrew & Yarovaya, Larisa, 2023. "The role of interpersonal trust in cryptocurrency adoption," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 83(C).

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    More about this item

    Keywords

    Social trust; Trading volume; Portfolio choice; Information precision;
    All these keywords.

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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