EcoFin Research Papers

This paper investigates how trust-based and ethical mechanisms shape market stability across heterogeneous financial systems. We assemble a multi-layer dataset combining firm-level data for publicly listed companies in 38 countries, country-level equity market indices, and major cryptocurrencies over the period 2010–2024. Trust and ethical capital are proxied by employee happiness indicators, religious and moral exposure of firms, and institutional backing measures in crypto markets. Using panel fixed effects models, interaction-based asset pricing regressions, and volatility decomposition techniques, we examine whether trust-related attributes reduce price instability and enhance valuation. The results show that higher employee happiness and stronger ethical alignment are associated with lower return volatility and higher risk-adjusted performance in equity markets. Similarly, cryptocurrencies with stronger institutional or hybrid governance backing exhibit significantly lower volatility. These stabilizing effects are more pronounced in environments with weaker formal institutions, suggesting that trust and ethics act as informal substitutes for regulatory credibility. Overall, the findings highlight trust-based capital as a unifying stabilizing force across traditional and digital financial markets.

Trust, ethics, market stability, employee happiness, cryptocurrencies

G12, G14, M14

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