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Institutional Quality, Trust and Stock-Market Participation: Learning to Forget

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Abstract

We explore the relation between institutional quality, trust and stock-market participation. In our theoretical model, agents update their beliefs in a Bayesian manner based on observations on frauds and choose whether to invest in the stock market. The corresponding empirical model shows that institutional quality affects trust and that the part of trust that is explained by institutional quality influences stock-market participation. For immigrants, we consider learning factors, such as education and duration of stay, and we find that the impact of the institutional quality of the country of residence, relative to that of the home country, tends to increase with education.

Suggested Citation

  • Asgharian, Hossein & Liu, Lu & Lundtofte, Frederik, 2014. "Institutional Quality, Trust and Stock-Market Participation: Learning to Forget," Working Papers 2014:39, Lund University, Department of Economics.
  • Handle: RePEc:hhs:lunewp:2014_039
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    Cited by:

    1. Makoto Yano & Takashi Komatsubara, 2014. "Participation of Ordinary Investors and Stock Market Quality: A Comparison between Japanese and US Markets," Pacific Economic Review, Wiley Blackwell, vol. 19(5), pages 537-558, December.
    2. repec:vul:omefvu:v:8:y:2017:i:2:id:234 is not listed on IDEAS
    3. Sarah El Joueidi, 2017. "Self-Regulation and Stock Listing Decision of Banks," CREA Discussion Paper Series 17-05, Center for Research in Economic Analysis, University of Luxembourg.

    More about this item

    Keywords

    institutional quality; learning; trust; stock-market participation;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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