Red = Risk, unless you’re in China

Can seeing Red negatively influence Stock Market Liquidity?

This is an interesting piece of research. We have written before about how the colour red influences our choices.

In this month’s round up of Science News, we spotted an article by Bazley, Cronqvist, and Mormann published in Management Science in which they report “that using the color red to represent financial data influences individuals’ risk preferences, expectations of future stock returns and trading decisions. The effects are not present in people who are colorblind, and they’re muted in China, where red represents prosperity. Other colors do not generate the same outcomes. . . . ‘

Red = Danger in the West from an early age.

‘In Western cultures, conditioning of red color and experiences start in early schooling as students receive feedback regarding academic errors in red,’ Bazley said.

Red is associated with alarms and stop signs that convey danger and command enhanced attention. . . . red color appears to prolong pessimistic expectations in relation to negative stock returns, while viewing the same information in black or blue leads to reversal beliefs.  

He [Bazley] said, ‘This suggests the use of color may have broad implications for stock market liquidity during times of crisis and the momentum anomaly.’”

So in other words, think carefully what colour you put on your financial prospectus, you might put someone off investing!

“The Color Red Influences Investor Behavior, Financial Research Reveals.”  2021.  Press release, The University of Kansas, http://news.ku.edu/2021/03/29/red-color-impacts-investor-behavior-financial-research-reveals