Author(s)

Ayfer Gurun^1*, George Geoffrey Booth^2,3

¹Naveen Jindal School of Management, The University of Texas at Dallas, Dallas, USA.
²Tommy and Victoria Baker School of Business, The Citadel Charleston, Charleston, USA.
³Frederick S. Addy Distinguished Chair in Finance, Eli Broad College of Business, Michigan State University, East Lansing, USA.

Human trust is a strong belief that the interactions between two or more people are based on reliability and truth. It is a straightforward concept but is often a difficult one to measure. In this paper, we review trust from a financial economic perspective, which involves financial transactions that occur in various markets. These transactions are made by individuals on their own behalf or as agents for other individuals or legal entities and are typically abetted by appropriate financial markets and institutions. Our survey covers more than 70 economic and finance journal articles and related publications that, with a few notable exceptions, were published in the last 25 years. The studies show that, among other things, trust is positively related to the completeness of financial contracts, increased participation in stock markets, and acquisition of insurance. Study results on the interaction between individuals and their financial advisors are mixed. Although some advisors may provide helpful guidance, many are driven by their own self-interest, although this may be mitigated by a close personal relationship between the two the advisor and advisee. These findings give support to the belief that private and public efforts should be made to increase financial literacy to help individuals find an advisor they trust.

Trust, Unwritten Agreements, Mutual Cooperation, Social Relationships, Fi-nancial Scandals, Financial Literacy

Gurun, A. and Booth, G. (2024) The Importance of Trust to Financial Markets and Institutions: Exploring the Current Literature. Theoretical Economics Letters, 14, 27-40. doi: 10.4236/tel.2024.141003.