Title

In the Red: The Effects of Color on Investment Behavior

Publication Date

6-27-2017

Abstract

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.

Document Type

Article

Keywords

Investment behavior; Color psychology

Disciplines

Marketing

DOI

10.2139/ssrn.2992812

Source

SMU Cox: Marketing (Topic)

Language

English

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