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Investment in risky assets and participation in the financial market: does financial literacy matter?

Author

Listed:
  • Andreas Oehler

    (Bamberg University)

  • Matthias Horn

    (Bamberg University)

  • Stefan Wendt

    (Bifröst University)

Abstract

Our study contributes to a better understanding of the relationship between financial literacy and households’ investments in risky assets. We estimate a structural equation model with data from the Panel on Household Finances of the German central bank. Our results show that although households’ net wealth is the dominant driver of investments in risky assets, financial literacy plays a remarkable role. Financial literacy has an indirectly positive influence on participation in the financial market. The higher the financial literacy, the lower is the risk aversion. The lower the risk aversion, the higher is the participation in the financial market.

Suggested Citation

  • Andreas Oehler & Matthias Horn & Stefan Wendt, 2024. "Investment in risky assets and participation in the financial market: does financial literacy matter?," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 71(1), pages 19-45, March.
    • Handle: RePEc:spr:inrvec:v:71:y:2024:i:1:d:10.1007_s12232-023-00432-9
    DOI: 10.1007/s12232-023-00432-9
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    More about this item

    Keywords

    Financial markets participation; Risky investments; Personal finance; Household finance;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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