Stock Market Participation Research Articles

Financial Literacy and IPO Underpricing

AbstractUsing an international sample of IPO firms and two country-level measures of financial literacy, we find strong evidence that financial literacy is negatively associated with IPO underpricing. In cross-sectional analyses, we find that the effect of financial literacy in reducing IPO underpricing is more pronounced when the information environment is less transparent. Employing path analysis, we document that information friction, firm transparency, and stock market participation are mechanisms that mediate this relationship. Our study contributes to and extends the literature by providing strong evidence that citizens’ financial literacy has an important and consistent influence on IPO underpricing.

Playing the Market: Retail Investment and Speculation in Twentieth-Century Britain. By Kieran Heinemann

During my undergraduate studies a few years ago, friends encouraged me to use some of my limited disposable income to invest in a popular cryptocurrency. I have since watched with mild amusement as the potential return oscillated violently between over 500 per cent to about the same as if I had put it into a current account, and smirked at online adverts from the UK Financial Conduct Authority warning that ‘Investing can seem like a game, but the risks involved are very real’. It is this sort of mass participation in financial markets as entertainment which Kieran Heinemann takes as his subject in his timely and insightful Playing the Market. Heinemann shows that popular participation in the stock market, since the late nineteenth century up to the recent proliferation of small investors in cryptocurrencies (p. 221), was meaningfully driven by the exciting appeal of games, risk, and gambling rather than any calculating rationality, with the British possessing a peculiar appetite for risk contrasting to that of Europe. Playing the Market looks beyond existing accounts of the City of London to investigate moral discourses ‘from below’ (p. 2) of the financial press and betting shops. There, Heinemann identifies a much longer legacy of popular stock market culture across the interwar period and ascendent by the post-war age of affluence. This culture underlay but also acted in tension with Thatcher’s agenda of economic individualism and market populism, and repeatedly raised anxieties around the moral health of the nation. Playing the Market aligns strongly with a historiographical trend questioning predominant narratives of the postwar period which has recently found a centre of gravity around Aled Davies, Ben Jackson, and Florence Sutcliffe-Braithwaite’s edited volume The Neoliberal Age? (2021). By illuminating the hitherto unexamined popular discourses of stock market participation, Heinemann convincingly disrupts the idea that the Thatcherite moment was regenerative of Victorian values otherwise subdued by the mid-century corporatist social democratic welfare state.

Can Global Sourcing Strategy Predict Stock Returns?

Problem definition: Whereas firms are increasingly relying on sourcing globally as a key constituent of their supply chain strategy, there is no empirical evidence on whether investors of these firms adequately reflect firms’ global sourcing strategy (GSS) in their stock-valuation process. In this paper, we empirically test whether stock market participants are efficient in doing so. Methodology/results: Using the empirical asset-pricing framework, we find that information concerning firms’ GSS strongly predicts their future stock returns. We compile a transaction-level imports database for U.S.-listed firms and construct measures for five widely studied GSS aspects in the operations management literature: the extent of global sourcing, supplier relationship strength, supplier concentration, sourcing lead time, and sourcing countries’ logistical efficiency. For each measure, we examine returns of a zero-cost investment strategy of buying from the highest and selling from the lowest quintile of that measure. Collectively, these investment strategies yield an average annual four-factor alpha of 6%–9.6% (6%–13.9%) with value (equal)-weighted portfolios. Their return predictability is incremental over other operations- and cost arbitrage–motivated predictors, such as inventory turnover, cash conversion cycle, and gross profitability; is persistent across different supply chain positions; and is robust to alternate risk models, subsamples, and empirical specifications. Together, our results indicate that the GSS measures embody independent information about firms’ future profitability, and this information is mispriced by market participants, leading to predictable returns. In accordance with this mechanism, we find that the GSS measures strongly predict both firms’ future earnings and the surprise in market reactions around the earnings announcement days. Managerial implications: The robust return predictability of our GSS measures suggests that investors are not fully incorporating GSS-related information in their stock valuation frameworks. Therefore, our results call for greater investor education on global sourcing and better dissemination of global-sourcing information so as to mitigate valuation inefficiency. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2023.1189 .

The Ongoing Recovery of U.S. Airline Stocks Through the COVID-19 Pandemic: An Event Study Approach

The COVID-19 pandemic hit the airlines, both business and leisure travels, hard due to severe travel restrictions imposed by governments around the world to combat the virus. The stock prices of major airline companies have dropped more than the broader market. This paper aims to quantify the impact of a shock to the COVID-19 pandemic on U.S. airline stock prices by examining ten specific events evenly spread through January 2020 and August 2022. Seven airline stocks are selected, including JetBlue, American, Delta, Alaska, United, Hawaiian and Spirit. It is observed that the stock prices react to public information quickly by the Efficient Market Hypothesis in most but not all situations, and to varying degrees. Simple regression analysis was performed as a supplement to understand the factors affecting the performance of transportation stocks in general. The result of this study will be useful to airline investors and stock market participants to react quickly when making investment decisions. Moreover, these results shed light on guiding regulators and policymakers to implement financial support amid catastrophic shocks from a pandemic or likewise.

Accounting Quality and Household Stock Market Participation

SYNOPSISRecent research documents that there is significant variation in stock market participation by state and suggests that there may be state-specific factors that determine stock market participation of U.S. households. Using household survey data, we examine how state-level, public-company accounting quality affects households’ stock market participation decisions. We find that households residing in states where local public companies have better accounting quality are more likely to invest in stocks. Also, those households invest greater amounts of their wealth in the stock market. Furthermore, we present some evidence that accounting quality affects stock market participation through local press coverage. Additional cross-sectional tests show that the effect of accounting quality on stock market participation is more pronounced among less affluent and less educated households, consistent with prior findings that familiarity with and trust in the stock market are more important for those types of households to make stock investments.JEL Classifications: D14; G11; M41.

Electronic trading and stock market participation in Africa: Does technology induce participation?

Electronic trading and stock market participation in Africa: Does technology induce participation?

RETURN AND VOLATILITY SPILLOVER ACROSS STOCK MARKETS OF THE US AND ITS MAJOR TRADING PARTNERS

ABSTRACT This Study Applies The Diebold And Yilmaz (2012) Spillover Index Methodology To Analyze The Effects Of Return And Volatility Spillovers Between The Us Market And Its Major Trading Partners Using Weekly Stock Market Returns From January 2011 To December 2019. The Findings Provide Credence To The Hypothesis That The Us Market Has Been The Most Influential In Terms Of Return Spillover (259.5) To Other Stock Indexes, With The Biggest Return Spillovers Occurring In The Canadian Market (58.4) And The German Market (57.0). In A Similar Manner, The Us Market Has Been The Biggest Transmitter Of Volatility Spillover (202.3) To Other Stock Indexes, With The Highest Volatility Spillovers Occurring In The Canadian Market (51.8) And The German Market (45.8). The Us Market Has Been The Most Influential Based On Return And Volatility Spillovers. This Finding Also Suggests That The Us And Chinese Markets Are The Least Vulnerable To Foreign Shocks. In Contrast, The Canadian Market Is The Most Vulnerable To External In Terms Of Return Spillover And Volatility Spillover. As A Consequence, Chinese Stock Market Participants Can Still Reap The Rewards Of Diversity. During The Sample Period, However, Integration Across Developed Stock Markets Has Increased, Reducing The Benefits Of Diversity. Keywords Return and Volatility Spillovers, Diebold and Yilmaz (2012) Spillover Index, Rolling Window Analysis

Racial Concordance in the Market for Financial Advice

Abstract We examine the role of race and racial concordance between financial advisors and their local community. We document significant differences in stock market participation based on community racial composition, as well as differences in the characteristics of communities served by minority advisors. Notably, minority advisors are more likely to serve racially concordant communities, which tend to be poorer. We find that racial concordance has only a modest relation with local stock market participation. However, while minority advisors are more likely to leave the industry, this relation is mitigated among advisors located in more concordant communities. (JEL G20, G50, D14, J15)

The negativity bias and perceived return distributions: Evidence from a pandemic

We hypothesize that the well-documented negativity bias, the psychological tendency to asymmetrically emphasize negative over positive aspects, can help explain several financial market phenomena: why most individuals hold strongly bearish views of both short- and long-term equity return distributions, why individuals exhibit heterogeneous beliefs, and the stock market participation puzzle. Using variation in the perceived risk of mortality from the swine flu pandemic as our primary proxy for an individual's negativity bias, we find strong support for our hypothesis even when controlling for alternative mechanisms including optimism, risk aversion, ambiguity aversion, and anxiety.

Military experience and household stock market participation: Evidence from China

This paper examines the relationship between military experience and household stock market participation. Using data from the 2010 wave of China Family Panel Studies (CFPS), we find that the military experience promotes the households participating in the stock market. We further investigate how military experience affects a household investment decision. The results show that the level of risk-taking and social trust of military households mainly drives the positive nexus. Moreover, the length of military service rather than the age affects household equity investment decisions. We also find that the positive relationship is more prominent in high-income households, and low-education households.

Does Financial Literacy Affect Stock Market Participation? Evidence from India

This article investigates the impact of financial literacy on stock market participation in India. It uses a sample of 700 respondents from three Indian states. The probit regression model has been used to estimate the effect of financial literacy on stock market participation. We find that most respondents lack fundamental understanding of finances. Less literate people are less likely to buy equities. Financial literacy has a big impact on stock market participation in India. Additionally, demographic parameters including age, education, income, marital status, and gender are proven to have an impact on financial literacy and stock market involvement. This article adds to the body of recent literature by providing a microeconomic explanation for the stock market participation paradox.

Factors Influencing Stock Market Participation: A Review

Factors Influencing Stock Market Participation: A Review

Investment activities on the stock market: information security in the network economy

Introduction. The network economy is developing in the conditions of geopolitical conflicts, military confrontation, the growth of public debt, and the scaling of investment attraction and investment through the use of technologies, products, and processes using network electronic interaction. An important place in the financial sector is occupied by the stock market, which in the conditions of digitalization opens up wide opportunities for investment activities of international donors, and institutional and private investors to restore the economy of Ukraine. Purpose. The purpose of the article is to consider the key problems of information provision of investment activities on the stock market, taking into account new regulatory provisions on capital markets, financial services, financial companies, and trading of financial instruments at operators of organized capital markets using network electronic interaction to increase liquidity. Method (methodology). The theoretical and applied basis is the scientific works of foreign and Ukrainian scientists researching the network economy, market microstructure, investments; modern statistical and information base of the stock market. The methods of dialectical logic, critical and scientific analysis, graphic, structural-functional, and expert evaluations are applied. Results. The relationship between the network economy and the stock market regarding the formation of a developed market microstructure, innovativeness, promotion of business activity, algorithmization of an integral set of quantitative and qualitative characteristics of investment activity, creation of new stock instruments and products are revealed. Attention is focused on reforming state regulators, taking into account the trends of digitalization of processes, and canceling the adjustment of regulatory acts, which makes it possible to direct investment policy to the coordination of geo-economic fragmentation of investments during the recovery of the economy. The methodical and applied approaches of information support for attracting investment from donors and stock market participants in reconstruction projects by the four freedoms regarding the movement of capital, goods, services, and free movement of the labor force are characterized.

Market Literacy and Stock Market Participation

Market Literacy and Stock Market Participation

Stock Market Participation and Accounting Information

Stock Market Participation and Accounting Information

Peer Effects in Stock Market Participation: Evidence From Immigration

Peer Effects in Stock Market Participation: Evidence From Immigration

Social Media and Stock Market Participation

Social Media and Stock Market Participation

Distorted Unemployment Beliefs and Stock Market Participation

Distorted Unemployment Beliefs and Stock Market Participation

The Gender Gap in Stock Market Participation: Evidence from Stock Gifting

The Gender Gap in Stock Market Participation: Evidence from Stock Gifting

To Invest or Not to Invest? Determinants of Low Stock Market Participation: Qualitative Perspective from Pakistan Stock Exchange

To Invest or Not to Invest? Determinants of Low Stock Market Participation: Qualitative Perspective from Pakistan Stock Exchange