IntroductionA recent line of research has found that trust plays an important role in financial decision making. Investing in the stock market and financial products and services requires great confidence in the fairness of the financial sector. The decision to invest in stocks requires not only an evaluation of the risk-reward ratio given existing data, but also a leap of faith (trust) that the data we have is reliable and that the overall system is fair. This article attempts to dig deeper into the trust-based explanation of individuals' financial decisions and explore the effects on stock market participation in particular. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay Guiso, Sapienza, and Zingales (2004, hereafter GSZ) studied the effect of trust behavior on portfolio choice decisions. They argue that an investor's perception of the risk of an asset depends not only on the asset, but also on the subjective characteristics of the investor. The reason is that the performance may be affected by the misbehavior of other parties. Furthermore, in GSZ (2008) they examined the effects of trust on stock market participation. GSZ also associates differences in stock market participation across countries with changes in aggregate levels of trust by regressing the share of shareholders in each country on average levels of trust and a few other country-level indicators. Consequently, trust in others is important for expected subjective return, and less trusting individuals hold fewer stocks. These authors find empirical support for this hypothesis using data from Italy and the Netherlands. Georgarakos and Pasini (2011) add to this research by linking trust and sociability to significant regional differences in ownership across ten major European countries, and conclude that both factors should be taken into account when studying household ownership decisions. to the stock market. Durlauf and Fafchamps (2004), after examining various definitions of social capital and several related empirical studies, distinguished three common characteristics: “Social capital generates positive externalities for members of a group; these externalities are achieved through trust, shared norms and values ​​and their effect on expectations and behavior; shared trust, norms and values ​​arise from informal organizations based on social networks and associations. with neighbors and church visits, encourages participation in the stock market. From these literatures the incorporation of sociability is of great importance therefore it is included as a control variable. Optimism is also considered a control variable because optimism outcomes deepen and expand confidence. According to Pennacchi's (2008) standard financial theory, all individuals should invest a fraction of their wealth in risky assets. The reality, however, is not as ideal as standard financial theory. Following the studies of Bertaut and Starr-McCluer (2002), we find that many families have negligible financial assets. Even the average household owns a small fraction of financial assets. Empirical research affirms that the fixed cost of participation is the main explanation of the participation puzzle. However, other evidence such as the report by Guiso and Sodini (2013) shows that even wealthy individuals do not always invest in stocks. In addition to the fixed costs of participation, they are also importantdemographic factors, such as income, age and education (Campbell, 2006). This article investigates behavioral finance and attempts to explain the stock market participation rate from the perspective of trust. Furthermore, previously discovered determinants such as household wealth, income, age, gender, and education are included in this study to describe the wealth effect and demographic effect. The primary motivation of this study is to examine the contributions of stock sentiment and evaluate possible implications for observed differences in household investment behavior across various contexts. This main objective is followed by the following specific objectives: examine the effect of trust on stock market participation in two directions; participation decision and level of participation. Analyze the most influential trust category for stock market participation. Literature Review In 2006, John Campbell coined the name “Household Finance” for the field of financial economics that studies how households use financial instruments to achieve their goals. Since then, home finance has attracted much academic interest. According to Campbell's (2006) framework, existing research has recently focused on three main aspects of household finance such as the participation puzzle (Haliassos & Bertaut, 1995), the diversification problem (Graham, Harvey & Huang, 2009) and mortgage decisions (Campbell & Cocco, 2003). The puzzle of stock market participation, first introduced by Haliassos and Bertaut (1995), has attracted extensive interest in the existing literature (e.g. GG Pennacchi, 2008; Bertaut & Starr-McCluer, 2002). In general terms, the stock market participation puzzle can be defined as the gap between what families are supposed to do according to theories and what they do in reality (Bertaut & Starr-McCluer, 2002). In standard financial theory (GG Pennacchi, 2008), all individuals should hold at least a fraction of their wealth in risky assets, regardless of the utility function and wealth base. The implication, however, does not hold up in reality. Family behaviors deviate from what is prescribed by normative models in most circumstances. According to studies by Bertaut and Starr-McCluer (2002), Haliassos and Bertaut (1995) and Tracy, Schneider and Chan (1999), it is almost certain that many families have negligible financial assets. Furthermore, it has been reported that the median household also owns a small fraction of financial assets. To explore the participation puzzle, research (e.g. Campbell, 2006) has developed in a variety of directions and many determinants have been identified during the last decade. Empirical research asserts that the fixed cost of participation is the primary determinant of the participation puzzle. For example, Vissing-Jorgensen (2003) examined the impact of participation costs on stock market participation and concluded that the rational participation decision can be significantly different when participation costs are added. A widely accepted interpretation is that fixed costs of participation consume a larger share of poor households' wealth and thus motivate the household to stay out of the stock market. Next, total assets are included in this study as a measure of wealth. Although the participation rate is better for wealthy families than for low-income families, the rate is still not high. For example, the richest 10% of households hold no stocks (US households in the 2007 SCF wave). This implies that the effectwealth caused by fixed costs is not the only explanation for the low participation rate. Demographic factors, such as income, age, and education, may also be important. Age has been studied for a long history as a determinant of economic decision making in a family. One of the famous theories is Modigliani's life cycle theory (Modigliani, 1966). According to this theory, people accumulate their wealth during their working life and use it after retirement. It is therefore reasonable to assume that this behavior also affects participation in the stock market. The participation rate also shows clear differences between the sexes. For example, Bajtelsmit and Bernasek (1996) demonstrated that men have a higher level of risk tolerance than women in general. The conclusion is confirmed by Dreber (2012), who examined the higher participation rate for men. Furthermore, education level is another determining factor that cannot be ignored. Overall, financial literacy has been identified as a factor that reduces fixed costs of participation. Higher levels of education and cognitive ability result in greater participation (Cole & Shastry, 2009). Although research focuses on the wealth and demographic effect (Campbell, 2006), a new area has taken a different direction in attempting to identify related behavioral determinants. Recent research on behavioral economics has already gained much attention from economists. In general, behavioral finance is an umbrella term for a number of approaches that seek to understand and explain observed individual behavior more accurately than the predictions associated with traditional financial theory. Given that the wealth effect and demographic effect alone are not sufficient to explain the observed low market participation rates; More and more researchers are trying to explain the puzzle with behavioral finance. Topics such as the fame effect, mental accounting, trust, and overconfidence have been studied intensively (Chuah & Devlin, 2010). Research on trust will be discussed in the following sections. According to Sapienza, Toldra-Simats and Zingales (2013), trust is a subjective belief in the reliability of others, that is, the probability of being deceived by the counterparty in a financial transaction. However, trust is a multidisciplinary concept and there is a rich literature on trust in other fields, particularly in philosophy, sociology and psychology. In psychology, in particular, trust is considered one of the primary human emotions (Plutchik, 1982) and numerous studies indicate that emotions exert a powerful influence on cognition and decision making (Barrett, 2009). the level of trust is identified as a determining factor. Guiso, Sapienza, and Zingales (2008) examine a shell game to analyze stock market participation. Most people will not play the game because they don't trust the fairness of the game. History has shown that the stock market is not always fair game. As stated in Giannetti and Wang's (2014) study, corporate fraud disclosure leads to lower confidence in the likelihood of stock market participation. Many previous studies have demonstrated the strong effect of trust on stock market participation. Studying Dutch and Italian microdata, Guiso, Sapienza, and Zingales (2008) demonstrate that lack of trust is an essential factor in explaining the puzzle of limited participation. They document a positive relationship between trust and stock investment. Furthermore, they also correlate the share of shareholders in each country with the average level of trust..