Financial Literacy and Participation in the Derivatives Markets

60 Pages Posted: 16 Nov 2017

See all articles by Yu-Jen Hsiao

Yu-Jen Hsiao

National Dong Hwa University

Wei-Che Tsai

Oregon State University; National Sun Yat-sen University - Department of Finance

Date Written: November 3, 2017

Abstract

We set out in this study to determine whether individuals with higher levels of financial literacy are more likely to be active participants in the derivatives markets. Our empirical results, based upon an official National Survey undertaken by the Financial Supervisory Commission of Taiwan, reveal that even after controlling for stock market participation rates, financial literacy represents a significant benefit to individuals since it helps them to lower the entry barriers to purchasing complex derivatives products. We also find that household wealth, gender, residential location and diverse sources of information have significant effects on participation rates in the derivatives markets. Furthermore, when taking into consideration issues of accessibility or measurement error, the positive effects of financial literacy on derivatives market participation are found to remain largely unchanged.

Keywords: Household finance; Financial literacy; Derivatives market participation

JEL Classification: D8, E2, G1

Suggested Citation

Hsiao, Yu-Jen and Tsai, Wei-Che, Financial Literacy and Participation in the Derivatives Markets (November 3, 2017). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3070011

Yu-Jen Hsiao

National Dong Hwa University ( email )

Taiwan

Wei-Che Tsai (Contact Author)

Oregon State University ( email )

Corvallis, OR 97331
United States

National Sun Yat-sen University - Department of Finance ( email )

No.70, Lianhai Rd., Gushan District,
Kaohsiung City
Taiwan

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