The role of beliefs in financial markets: Three essays on violence, trust, and religion.

摘要

This dissertation explores the role of beliefs in financial markets. It consists of three essays that investigate how each of violence, trust, and religion influences peoples' beliefs and impacts financial markets.;The first essay examines the cross-border financial impact of political violence. It proposes that violence has two types of impacts; a direct loss from the destruction of physical and human capital, and a reallocation of financial and economic assets to other destinations. It documents both sides of this reallocation transaction; the negative effect on the country afflicted by violence, and the positive on other countries. In doing so, the essay reconciles the dichotomy in the literature regarding the magnitude of the economic impact of violence. The study also analyzes the impact of certain country characteristics on this cross-border reallocation.;The second essay (coauthored with Iris Bonnet) explores whether insuring principals against the downside of trust in case of a breach increases trust. We use an inequality aversion framework to argue that while insurance decreases the principal's cost of breach, it actually increases its likelihood. Thus, insurance poses a complex optimization problem for principals. We employ trust experiments in Jordan to measure changes in subjects' willingness to trust and be trustworthy in response to changes in the principal's breach payoffs. We also examine how naturally occurring vulnerabilities affect trust and trustworthiness. The study finds that insuring principals against agents' breach leads to lower trustworthiness. There is no clear relationship between insurance and trust. Additionally, more naturally vulnerable principals receive higher rates of trustworthiness.;The third essay investigates a seldom explored relationship, that between religion and financial markets. This study examines the effect of religious experience during the Muslim holy days of Ramadan and Ashoura on the daily returns and trading volume of seventeen Muslim financial markets. It uses the special characteristics of the Muslim lunar calendar to isolate the elusive effect of faith. The study documents statistically significant changes in daily returns and trading volume associated with religious experiences. The essay utilizes the heterogeneity of worship intensity within Ramadan as a natural experiment to validate the results' robustness.