Financial Literacy, Risk Aversion and Financial Behaviours: What Shapes the Preference for Capital Market Participation?

This paper aims at examining the role played by financial literacy, risk aversion and financial behaviours in shaping young individuals' preference for making investments in traditional assets of the Romanian capital market. For this purpose, we conducted a survey among the students enrolled in the finance and banking oriented faculty at the largest university of economic studies in Romania. The questionnaire comprises 40 questions that assess respondents' general social and demographic background, financial behaviours, risk aversion, basic and advanced financial literacy. For this study, we used a sample of 416 Romanian nationality respondents. We employed an ordered logistic model in order to examine what drives young people 's preference for capital market investments. The estimates indicate that financial literacy plays an important role in stimulating their propensity to invest in the capital market. Risk aversion prevails in the case of individuals with only basic financial literacy and reduces their preference for a more diversified portfolio. If young people face difficulties in satisfying their desires, they will not be inclined to invest in the capital market.