Abstract
In recent years, financial literacy has attracted much attention in the field of household finance as individuals have become more concerned about their financial well-being. Besides, financial products have become more complex over the years. Therefore, financial literacy has become crucial for financial decision making and has received the attention of policymakers, researchers and regulatory bodies. This study investigates the cross-sectional heterogeneity on the relationship between financial literacy and stock market participation in an emerging economy, particularly Pakistan. This study uses the survey data of the 300 individuals residing in Islamabad. Exploratory factor analysis is used to assess convergent and discriminant validity of the survey data. Results are estimated using logistic regression. Results of this study show that individuals with higher levels of financial literacy tend to participate more in the stock market. This study also finds the support for gender gap on the financial literacy and participation in the stock market. Further, it is observed that age, qualification and income are positively associated with stock market participation. In the end, the conclusion of the study is given along with significant policy implications.
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