Conversations, return horizons, and the stock market participation puzzle

Abstract

Purpose This study investigates how informal conversations and the framing of historical return information influence stock market participation, with a focus on low-investment contexts such as India. It aims to determine whether these factors nudge individuals toward or away from investing in riskier financial assets. Design/methodology/approach We conducted a laboratory experiment involving university students in Western India. Participants were randomly assigned to one of three conversational treatments: bullish, bearish, or neutral. While the conversations unfolded naturally, they were subtly moderated to reflect the tone of each treatment. Following the discussion, participants completed 14 incentivized investment tasks, allocating virtual funds across assets with differing risk-return profiles. A second, within-subject randomized treatment varied the time horizon of return information, either short-term (1 year) or both short and long-term (5 years), to examine how return framing influences investment behavior. Findings Bearish conversations significantly reduced investment in risky assets and increased preference for the safest option, consistent with more conservative portfolio choices. In contrast, bullish conversations led to more complex reallocation, with reduced investment in both risky and safer assets. Women responded more conservatively under bearish conversations, while their reactions to bullish conversations involved nuanced adjustments. Longer investment horizons led to increased risky investment across gender. These effects were not mediated by changes in risk preferences. Originality/value This study offers the first causal evidence that informal conversations can directly shape investment behavior. It also advances the literature on time horizon framing and gender differences in financial decision-making, insights that are especially valuable for informing the design of investment apps. The findings highlight how low-cost, scalable interventions can boost financial participation, particularly relevant for underrepresented groups like women.