IDEAS home Printed from https://ideas.repec.org/a/col/000443/020964.html
   My bibliography  Save this article

The Moderating Effect of Financial Literacy on the Relationship Between Decision-Making Tools and Equity Returns in the Indian Secondary Equity Market

Author

Listed:
  • Isidore, Renu

    (Loyola Institute of Business Administration)

  • Arun, C. Joe

    (Loyola Institute of Business Administration)

Abstract

Decision-making in the complex equity market is a demanding task due to the vast amount of information available and the wide range of decision-making techniques to choose from. The financial literacy ofthe investors plays a prominent role in influencing their decision-making process. Though the Indian equity market is the third largest in Asia, only around 3% of Indian households invest in it. Therefore, the financial literacy level of Indian investor needs to be assessed to increase the stock market participation and earn higher returns. Thisstudy aims to determine the moderating effect of financial literacy on the relationship between the decision-making tools and equity returns in the Indian secondary equity market. The decision-making tools include fundamental analysis: (i) Economic analysis, (ii) industry analysis, (iii) company analysis, (iv) technical analysis, and (v) advocate recommendation. The data was gathered through a questionnaire survey method and via a valid sample of 436 questionnaires, the significance of the moderating effect was tested. Using the Process Macro plugin in SPSS, moderation analysis was conducted. The results reveal that financial literacy only moderated the relationship between economic analysis and equity returns.

Suggested Citation

  • 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.
    • Handle: RePEc:col:000443:020964
    as

    Download full text from publisher

    File URL: https://revfinypolecon.ucatolica.edu.co/article/view/4859
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Milo Bianchi, 2018. "Financial Literacy and Portfolio Dynamics," Journal of Finance, American Finance Association, vol. 73(2), pages 831-859, April.
    2. van Rooij, Maarten & Lusardi, Annamaria & Alessie, Rob, 2011. "Financial literacy and stock market participation," Journal of Financial Economics, Elsevier, vol. 101(2), pages 449-472, August.
    3. 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.
    4. Zhong Chu & Zhengwei Wang & Jing Jian Xiao & Weiqiang Zhang, 2017. "Financial Literacy, Portfolio Choice and Financial Well-Being," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 132(2), pages 799-820, June.
    5. Hermansson, Cecilia & Jonsson, Sara & Liu, Lu, 2022. "The medium is the message: Learning channels, financial literacy, and stock market participation," International Review of Financial Analysis, Elsevier, vol. 79(C).
    6. Shalini Kalra Sahi, 2009. "Financial literacy education for the Indian consumer: the road to economic development," International Journal of Indian Culture and Business Management, Inderscience Enterprises Ltd, vol. 2(5), pages 493-518.
    7. Tabea Bucher-Koenen & Rob Alessie & Annamaria Lusardi & Maarten van Rooij, 2021. "Fearless Woman. Financial Literacy and Stock Market Participation," Working Papers 708, DNB.
    8. Maarten C.J. van Rooij & Annamaria Lusardi & Rob J.M. Alessie, 2012. "Financial Literacy, Retirement Planning and Household Wealth," Economic Journal, Royal Economic Society, vol. 122(560), pages 449-478, May.
    9. Jenni L. Bettman & Stephen J. Sault & Emma L. Schultz, 2009. "Fundamental and technical analysis: substitutes or complements?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 49(1), pages 21-36, March.
    10. Jappelli, Tullio & Padula, Mario, 2013. "Investment in financial literacy and saving decisions," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2779-2792.
    11. repec:ecj:econjl:v:122:y:2012:i::p:449-478 is not listed on IDEAS
    12. Agarwal, Sumit & Amromin, Gene & Ben-David, Itzhak & Chomsisengphet, Souphala & Evanoff, Douglas D., 2015. "Financial literacy and financial planning: Evidence from India," Journal of Housing Economics, Elsevier, vol. 27(C), pages 4-21.
    13. Ateş, Sinem & Coşkun, Ali & Şahin, M. Abdullah & Demircan, M. Levent, 2016. "Impact of Financial Literacy on the Behavioral Biases of Individual Stock Investors: Evidence from Borsa Istanbul," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 7(3), pages 1-19, July.
    14. Nosheen Rasool & Safi Ullah, 2020. "Financial literacy and behavioural biases of individual investors: empirical evidence of Pakistan stock exchange," Journal of Economics, Finance and Administrative Science, Emerald Group Publishing Limited, vol. 25(50), pages 261-278, May.
    15. Swati Prasad & Ravi Kiran & Rakesh Kumar Sharma, 2021. "Influence of financial literacy on retail investors' decisions in relation to return, risk and market analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2548-2559, April.
    16. Gil Cohen & Andrey Kudryavtsev & Shlomit Hon-Snir, 2011. "Stock Market Analysis in Practice: Is It Technical or Fundamental?," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 1(3), pages 1-9.
    17. Mostafa Saidur Rahim Khan & Naheed Rabbani & Yoshihiko Kadoya, 2020. "Is Financial Literacy Associated with Investment in Financial Markets in the United States?," Sustainability, MDPI, vol. 12(18), pages 1-14, September.
    18. Lusardi, Annamaria & Mitchell, Olivia S., 2011. "Financial literacy around the world: an overview," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(4), pages 497-508, October.
    19. Almenberg, Johan & Dreber, Anna, 2015. "Gender, stock market participation and financial literacy," Economics Letters, Elsevier, vol. 137(C), pages 140-142.
    20. Mostafa Saidur Rahim Khan & Naheed Rabbani & Yoshihiko Kadoya, 2021. "Can Financial Literacy Explain Lack of Investment in Risky Assets in Japan?," Sustainability, MDPI, vol. 13(22), pages 1-12, November.
    21. Saeed Ahmad Sabir & Hisham Bin Mohammad & Hanita Binti Kadir Shahar, 2019. "The Role of Overconfidence and Past Investment Experience in Herding Behaviour with a Moderating Effect of Financial Literacy: Evidence from Pakistan Stock Exchange," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(4), pages 480-490, April.
    22. Oberlechner, Thomas, 2001. "Importance of Technical and Fundamental Analysis in the European Foreign Exchange Market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(1), pages 81-93, January.
    23. Khaira Rizfia Fachrudin & Khaira Amalia Fachrudin, 2016. "The Influence Of Education And Experience Toward Investment Decision With Moderated By Financial Literacy," Polish Journal of Management Studies, Czestochowa Technical University, Department of Management, vol. 14(2), pages 51-60, December.
    24. Rajdeep Kumar Raut, 2020. "Past behaviour, financial literacy and investment decision-making process of individual investors," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 15(6), pages 1243-1263, April.
    25. Chen, Haiyang & Volpe, Ronald P., 1998. "An Analysis of Personal Financial Literacy Among College Students," Financial Services Review, Elsevier, vol. 7(2), pages 107-128.
    26. Korniotis, George M. & Kumar, Alok, 2013. "Do Portfolio Distortions Reflect Superior Information or Psychological Biases?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 48(1), pages 1-45, February.
    27. Samuel Adomako & Albert Danso & John Ofori Damoah, 2016. "The moderating influence of financial literacy on the relationship between access to finance and firm growth in Ghana," Venture Capital, Taylor & Francis Journals, vol. 18(1), pages 43-61, January.
    28. Mary Nelima SINDANI, 2019. "The Moderating Effect of Financial Literacy on the Relationship between Accounts Receivable Management Practices and Growth of SMEs in Kenya," Expert Journal of Finance, Sprint Investify, vol. 7(1), pages 1-7.
    29. Saeed Ahmad Sabir & Hisham Bin Mohammad & Hanita Binti Kadir Shahar, 2019. "The Role of Overconfidence and Past Investment Experience in Herding Behaviour with a Moderating Effect of Financial Literacy: Evidence from Pakistan Stock Exchange," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(4), pages 480-490.
    30. Hoffmann, Arvid O.I. & Shefrin, Hersh, 2014. "Technical analysis and individual investors," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 487-511.
    31. Ashok Thomas & Luca Spataro, 2018. "Financial Literacy, Human Capital and Stock Market Participation in Europe," Journal of Family and Economic Issues, Springer, vol. 39(4), pages 532-550, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Azra Zaimovic & Anes Torlakovic & Almira Arnaut-Berilo & Tarik Zaimovic & Lejla Dedovic & Minela Nuhic Meskovic, 2023. "Mapping Financial Literacy: A Systematic Literature Review of Determinants and Recent Trends," Sustainability, MDPI, vol. 15(12), pages 1-30, June.
    2. Chen, Haiyang & Dai, Ya & Guo, David, 2023. "Financial literacy as a determinant of market participation: New evidence from China using IV-GMM," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 611-623.
    3. Lusardi, Annamaria & Kaiser, Tim, 2024. "Financial literacy and financial education: An overview," CEPR Discussion Papers 19185, C.E.P.R. Discussion Papers.
    4. Lusardi, Annamaria & Kaiser, Tim, 2024. "Financial literacy and financial education: An overview," CEPR Discussion Papers 19185, C.E.P.R. Discussion Papers.
    5. Shen, Chung-Hua & Lin, Shih-Jie & Tang, De-Piao & Hsiao, Yu-Jen, 2016. "The relationship between financial disputes and financial literacy," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 46-65.
    6. Oscar A. Stolper & Andreas Walter, 2017. "Financial literacy, financial advice, and financial behavior," Journal of Business Economics, Springer, vol. 87(5), pages 581-643, July.
    7. Albert Hizgilov & Jacques Silber, 2020. "On Multidimensional Approaches to Financial Literacy Measurement," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 148(3), pages 787-830, April.
    8. Gilles E. Gignac & Elizabeth Ooi, 2022. "Measurement error in research on financial literacy: How much error is there and how does it influence effect size estimates?," Journal of Consumer Affairs, Wiley Blackwell, vol. 56(2), pages 938-956, June.
    9. Noemi Oggero & Maria Cristina Rossi & Elisa Ughetto, 2020. "Entrepreneurial spirits in women and men. The role of financial literacy and digital skills," Small Business Economics, Springer, vol. 55(2), pages 313-327, August.
    10. Tinghög, Gustav & Ahmed, Ali & Barrafrem, Kinga & Lind, Thérèse & Skagerlund, Kenny & Västfjäll, Daniel, 2021. "Gender differences in financial literacy: The role of stereotype threat," Journal of Economic Behavior & Organization, Elsevier, vol. 192(C), pages 405-416.
    11. Annamaria Lusardi & Olivia S. Mitchell, 2014. "The Economic Importance of Financial Literacy: Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 5-44, March.
    12. Barış Sancak & Dilek Demirbaş, 2024. "The Effect Of Financial Literacy On Participation In Investment Markets: A Study On University of Health Sciences Students," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 11(2), pages 204-225, July.
    13. Hanson, Thomas A. & Olson, Peter M., 2018. "Financial literacy and family communication patterns," Journal of Behavioral and Experimental Finance, Elsevier, vol. 19(C), pages 64-71.
    14. Bucher-Koenen, Tabea & Janssen, Bennet & Knebel, Caroline & Tzamourani, Panagiota, 2023. "Financial literacy, stock market participation, and financial well-being in Germany," ZEW Discussion Papers 23-071, ZEW - Leibniz Centre for European Economic Research.
    15. Ziyuan Lyu & Li Wei, 2021. "Information sources and participation in the Chinese insurance market: knowledge as a mediator," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 46(1), pages 79-106, January.
    16. Ngoc Duc Lang & Ha Mai Tran & Giang Tra Nguyen & Duc Hong Vo, 2024. "An Untapped Instrument in the Fight Against Poverty: The Impacts of Financial Literacy on Poverty Worldwide," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 174(2), pages 657-695, September.
    17. Zhou, Yang & Yang, Manfang & Gan, Xu, 2023. "Education and financial literacy: Evidence from compulsory schooling law in China," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 335-346.
    18. Takuya Katauke & Sayaka Fukuda & Mostafa Saidur Rahim Khan & Yoshihiko Kadoya, 2023. "Financial Literacy and Impulsivity: Evidence from Japan," Sustainability, MDPI, vol. 15(9), pages 1-14, April.
    19. Sara Lamboglia & Noemi Oggero & Mariacristina Rossi & Massimiliano Stacchini, 2024. "Financial knowledge and career aspirations among the young: a route to entrepreneurship," Questioni di Economia e Finanza (Occasional Papers) 838, Bank of Italy, Economic Research and International Relations Area.
    20. Marie-Hélène BROIHANNE, 2021. "Testing the gender gap in subjective financial literacy of spouses," Working Papers of LaRGE Research Center 2021-08, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.

    More about this item

    Keywords

    Financial literacy; secondary equity investors; Indian equity market; decision making; equity returns; economic analysis;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:col:000443:020964. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Universidad Católica de Colombia (email available below). General contact details of provider: https://edirc.repec.org/data/feuccco.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.