The effect of trust and information on household risky financial investments

The effect of trust on household risky financial investments was investigated using a recently developed measure of trust radius. Using data from the 2018 China Family Panel Studies, we show that trust affected both the household decision to invest and the amount of risky investments. These effects were inverted U-shaped. Also, we found that the perceived importance of information from traditional media sources moderated this effect, such that higher importance of information turned the effect of trust on risky investments from inverted U-shaped into U-shaped. The effect of trust was significant only for wealthier households and for households in regions with more inclusive financial development. Several robustness checks and endogeneity analyses corroborated our results. Implications for policy making are included.