In the red: the effects of color on investment behavior
Henrik Cronqvist, Professor of Finance, University of Miami
Please join us for our upcoming finance seminar. Henrik Cronqvist, Professor of Finance, University of Miami will be presenting.
University of Oxford staff and students are welcome to attend if seats are available. If you would like to attend please contact Marie van Boekel to check availability.
Financial decisions in today's society are made in environments that involve color stimuli. In this paper, we perform an empirical analysis of the effects of color on investment behavior. First, we find that when investors are displayed potential losses in red, risk-taking is reduced. Second, when investors are shown past negative stock price paths in red, expectations about future stock returns are reduced. Consistent with red causing "avoidance behavior," red color reduces investors' propensity to purchase stocks. The findings are robust to a series of checks involving colorblind investors and alternative colors to control for salience effects. Finally, the effects are muted in a cultural setting, e.g., China, where red is not used to visualize financial losses. A contribution of this study is to introduce hypotheses from color psychology and visual science to enhance our understanding of the behavior of individual investors.