Financial awareness, risk preference, and financial market participation: evidence from Indian investor survey

Abstract

We examine the determinants of equity and derivatives market participation using an Indian investor survey. We study the impact of two individual investor-specific factors, i.e., financial awareness and risk aversion, on the individual investor's decision to participate in the equity and derivatives markets. Using the Indian investors' survey dataset, including more than fifteen thousand investors, we provide empirical evidence suggesting that financial awareness is positively related to equity and derivatives market investment decisions. Furthermore, we find that risk preference moderate the given linkage between financial awareness and financial market participation. Our results are validated in a battery of robustness tests using alternative financial awareness and risk preference measures and split-sample analysis based on state-level internet penetration and market participation. Implications for theory and practice are discussed.