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Trust and price efficiency

Author

Listed:
  • Li, Jinxian
  • Gong, Yujing
  • Ho, Kung-Cheng
  • Zhang, Cheng

Abstract

The relationship between societal trust and stock price delay is examined across 33 countries for the period from 1985 to 2021. The results showed that societal trust positively impacts investors' perception of information credibility, resulting in a shortened stock price delay. This effect is attributed to the role of societal trust as an informal institution. Further analysis indicated that the impact of societal trust is particularly pronounced in countries with more prevalent ownership by long-term institutional shareholders, more control of foreign shareholders from low trusting countries, laxer legal systems and disclosure requirements, and higher political risk. This study enhances the understanding of how societal trust shapes investors' information processing and emphasizes informal institutions role in promoting capital market efficiency.

Suggested Citation

  • Li, Jinxian & Gong, Yujing & Ho, Kung-Cheng & Zhang, Cheng, 2023. "Trust and price efficiency," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:intfin:v:89:y:2023:i:c:s1042443123001233
    DOI: 10.1016/j.intfin.2023.101855
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    More about this item

    Keywords

    Trust; Stock price delay; Price efficiency; Perceived credibility;
    All these keywords.

    JEL classification:

    • 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
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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