New Research on Red (04-14-21)

Bazley, Cronqvist, and Mormann’s recent research provides additional evidence that the color red should be used cautiously.  The investigators report in an article published in Management Science“thatusing 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. . . . ‘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.’”

“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