Financial awareness, risk aversion and portfolio choice

Malvika Chhatwani

Applied Economics, 2025, vol. 57, issue 30, 4279-4294

Abstract: “The financial market participation puzzle remains one of the most explored yet unanswered areas in finance. We extend the debate of portfolio choice by examining stock and derivatives market participation by focusing on two key investor traits: financial awareness and risk aversion. We use an investor survey conducted by the Securities and Exchange Board of India (SEBI), covering over 15,000 Indian investor responses. We find that risk aversion is associated with a 20% lower probability of market participation, whereas risk-averse individuals having high financial awareness are around 3.3% more likely to participate in financial markets. Furthermore, financial awareness and risk aversion are more significant in areas with higher economic freedom and lower social capital. Our findings suggest that policymakers may consider tailored financial awareness programmes based on differences in risk aversion among the investors as both these characteristics have a combined relationship with financial market participation.

Date: 2025
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DOI: 10.1080/00036846.2024.2356896

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