Academic journal article Financial Services Review

Investors' Images of the Stock Market: Antecedents and Consequences

Academic journal article Financial Services Review

Investors' Images of the Stock Market: Antecedents and Consequences

Article excerpt

1. Introduction

In recent years there has been an interest in how subjective impressions of the stock market affect participation in it. For example, Guiso, Sapienza, and Zingales (2008) studied investors' perceived trustworthiness of the stock market and found they assess the risk of being cheated when deciding whether to buy in. Keller and Siegrist (2006) observed that perceptions of stock profit-making and taking as unethical, or of the stock market as a casino, predict behaviors related to trading securities. More generally, MacGregor (2002) suggested that the investing behavior of retail investors will be strongly impacted by their images of the stock market, primarily because many of them lack the skills to process the available objective data.

An effort to build on this line of inquiry introduced the concept of stock market image and developed a scale for measuring it (Dobni and Racine, 2015). Formally, that work conceptualized and defined stock market image as a multidimensional construct that captures the sum of the total perceptions or impressions an individual holds about the stock market, separate and apart from those that may be held about specific stock or company listings. Practically speaking, understanding this "whole picture" view of the stock market was considered to be important because of its potential influence on investors' behaviors, expectations and experiences, and the potential value of image as a strategic positioning tool (Bravo, Montaner, and Pina, 2012).

To some degree, perceptions and impressions about the stock market may be controllable by institutions that facilitate and regulate participation in it (e.g., stock market owners, securities regulators, and investment advisory providers). However, if strategies are to be devised to form, change, downplay, confirm, or otherwise compensate for them, there is a need to better understand their origins and implications (O'Shaughnessy, 1987). The main purpose and contribution of this study was to test several hypotheses related to the antecedents and consequences of stock market image. More specifically, it sought to understand how several key personal factors might influence street-level images of the stock market, and how these images might in turn influence investor behaviors and outcomes. As more becomes known about these relationships, strategies to manage or remediate investors' images of the stock market can be better specified.

To accomplish these goals, this article first provides a brief review of the literature on the form and content of stock market image, and develops and advances several hypotheses pertaining to the construct's antecedents and consequences. Next, the field study undertaken to empirically investigate these hypotheses is described, followed by an analysis of the research results and a discussion of robustness. The article concludes by examining the relevance of the findings for managers and identifying research implications and limitations.

To guide the discussion that follows, a framework that depicts the key variables and relationships included in the study is presented in Fig. 1 below. Note that while the concept flow depicted in this figure truly is left to right, and there is a natural implied direction of causality, it is recognized that it is unlikely that the image an investor has in her first investment will be exactly the same image for her tenth investment. Thus, while there is in our opinion an inferred direction of causality, the real world investor will likely follow the path depicted in Fig. 1 in an iterative process before "settling" on an image that will inform that investor's decisions. Nonetheless, it is rigorously correct to interrogate the impact of stock market image using the process described below, with its theoretically motivated causality direction.

2. Nature of stock market image

Image research is concerned with the mental impressions or gestalts that are formed about target objects (Stern, Zinkhan, and Jaju, 2001). …

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