Doctoral Dissertation Research: Investment Strategies in Comparative Context

Regents Of The University Of Michigan - Ann Arbor, Ann Arbor MI

Investigators

Abstract

SES - 1129689 George Steinmetz (PI) Camilo Arturo Leslie (co-PI) University of Michigan Doctoral Dissertation Research: Investment Strategies in Comparative Context Abstract This study examines what makes clients trust in financial services firms in two countries. Sociological studies of client-firm trust are in short supply. However, research in behavioral economics as well as recent news reported in the financial pages suggests that trust (and lack thereof) has an important impact not only on financial markets but our economic system at large. By comparing defrauded, middle-class investors from the U.S. and Venezuela, this study attempts to identify how both general and country-specific factors worked in concert to induce clients to trust in firm that turned out to engage in fraudulent practices. Drawing its hypotheses from social science theories regarding the source of trust, this research tests the following propositions: 1. Trust is the outcome of both interpersonal and macro-institutional forces. 2. Trust is an affective and interpretive mental process that allows us to act where knowledge alone would be insufficient. 3. Trust is a function of social and network relationships. 4. Trust rests essentially in rational calculation and risk assessment. Through the use of semi-structured, face-to-face interviews (N = 100) with both investors and employees of a financial services firm, this research aims to test core hypotheses linked to competing theories against the facts of a complex, international case of trust creation and dissolution. Broader Impacts The broader impacts of this study are numerous and notable given the recent rise in Ponzi schemes in which a wide range of investors have been victimized. This study is likely to generate findings of interest to the financial industry as well as to policy makers. More concretely, this project could provide policy-makers with insights into how investors navigate client-firm relationships. Such knowledge could inform future rule-making in financial markets. Given the focus on comparing legal and regulatory regimes, socio-legal scholars and Latin American specialists may also find that the study speaks to their concerns. Insights could also help regulators and law enforcement personnel to flag fraud attempts in the future. Finally, findings regarding client-firm trust might be useful for educational materials intended to equip investors with tools to detect and avoid financial fraud in their own lives (e.g., financial literacy and financial safety programs).