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Financial Literacy, Risk Tolerance and Stock Market Participation

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  • Rajesh Mishra

Abstract

This study explores how households’ stock market investment decisions are influenced by self-assessed financial literacy, investment awareness, risk propensity and socio-economic characteristics. This study used national survey data of Indian households across the country, a survey conducted by SEBI (Securities and Exchange Board of India) to get a comprehensive view of households’ characteristics, behaviour and investment patterns. The results of logistic regression indicate that individual having more risk tolerance, financial literacy, and investment awareness significantly influences the stock market investment decisions. ANOVA results indicate the significant difference among different groups of responding households according to age, education, zone, saving, debt, and income level while no significant difference found in level of stock market participation based on gender, occupation, and marital status. The results also validate the usefulness of financial education programme for enhancing the financial awareness among households that positively impacts the investment decision regarding stock market investments.

Suggested Citation

  • Rajesh Mishra, 2018. "Financial Literacy, Risk Tolerance and Stock Market Participation," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 8(12), pages 1457-1471.
    • Handle: RePEc:asi:aeafrj:v:8:y:2018:i:12:p:1457-1471:id:1768
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    Cited by:

    1. Lu, Zhiqiang & Wu, Junjie & Li, Hongyu & Galloway, Brian, 2024. "Digital finance and stock market participation: The case of internet wealth management products in China," Economic Systems, Elsevier, vol. 48(1).
    2. Shulin Xu & Kangqi Jiang, 2024. "Knowledge creates value: the role of financial literacy in entrepreneurial behavior," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-17, December.
    3. Isidore, Renu & Arun, C. Joe, 2023. "The Moderating Effect of Financial Literacy on the Relationship Between Decision-Making Tools and Equity Returns in the Indian Secondary Equity Market," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 15(1), pages 185-211, January.
    4. S. Ananda & Raghavendra Prasanna Kumar & Tamanna Dalwai, 2024. "Impact of financial literacy on savings behavior: the moderation role of risk aversion and financial confidence," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 29(3), pages 843-854, September.
    5. John Grable & Eun Jin Kwak & Martha Fulk & Aditi Routh, 2022. "A Simplified Measure of Investor Risk Aversion," Journal of Interdisciplinary Economics, , vol. 34(1), pages 7-34, January.
    6. Ivan Skliarov & Łukasz Goczek, 2024. "What Makes a Household Wealthy? Is it Reckless Risk-Taking or Careful Planning?," LWS Working papers 42, LIS Cross-National Data Center in Luxembourg.

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