Assessing the effects of financial literacy on retail stock market participation in Zambia : a case of Indo Zambia bank.

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Bule, Paul
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The University of Zambia
Generally, shares offer better average returns than one can achieve from alternative investment products such as bonds and savings accounts. However, the participation of retail investors on the stock market (share ownership) by adult Zambians was found to be very low, standing at 0.3% of all financially included as per survey conducted in 2017.Low financial literacy levels have been cited as the main reason for poor stock market participation among retail investors elsewhere. As such, the study undertook to understand whether low levels of financial knowledge impede on retail stock market participation. The key objectives were to examine the state of financial literacy in Zambia, identify the leading factors in financial literacy and to establish the effect of the leading financial literacy factors on stock market participation. With a randomly selected sample size of 175 among employees of Indo Zambia Bank to whom a structured questionnaire was administered, the study used SPSS and employed the Binary logistic regression framework to analyze the data. The study finds elevated levels of financial knowledge among participants with average scores on financial literacy and stock market questions standing at 83.9% and 71.3%, respectively. Despite heightened levels of financial literacy among the studied adult Zambians, stock market participation was found to be very low and stood at only 11.2%. Nonetheless, 70% of the non-shareholding participants indicated intentions or plans to do so in the future. Using gender, age, education, income level and one’s social network as correlates of financial literacy as per empirical literature and surveys elsewhere, the study finds that all the aforementioned mattered in the decision to participate in the stock market except for the level of education. In particular, Income level was found to be the most important factor, followed by age, social networks and gender. In view of a better participation rate, and in this regard among an overly financially literate sample compared to the national figure, the results in this study provide evidence of the positive relationship between financial literacy and its correlates on stock market participation.
Thesis of Masters in Strategic Management.