Nonprofessional Investors’ Financial Literacy and their Trust in the Financial Markets

• In Event: Accounting Behavior and Organizations I

Abstract

This study extends the capital markets trust literature by examining how financial literacy affects nonprofessional investors’ trust in financial markets. In an experimental setting, we provided nonprofessional investors with an instrument used to assess their trust in financial markets. Controlling for individuals’ risk propensity, we find a negative association between nonprofessional investors’ financial literacy and their trust that financial markets operate as intended. Our findings serve as an informed call for future research to provide an empirically supported theoretical basis to explain the negative association we find between financial literacy and trust. Our findings may be of interest to policy makers and financial market practitioners, potentially spurring them to seek research which examines the direct effect nonprofessional investors’ financial literacy has on nonprofessional investors’ financial market participation.

Authors

• Lee Michael Kersting, Northern Kentucky University

• Robert Neil Marley, Georgia Southern University

• Mark Joseph Mellon, University of South Florida