Trust and price efficiency

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.