Financial literacy and stock market participation: The moderating effect of country-specific social connectedness

Abstract: This research studies the moderating effect of country-specific social connectedness on the relation between financial literacy and stock market participation. This is done by using the extensive and multi-country SHARE data. The positive relation between financial literacy and stock market participation is reconfirmed. Moreover, the findings show that country-specific social connectedness significantly moderates the relation between financial literacy and stock market participation. The findings are robust and indicate that the predictive power of financial literacy on stock market participation decreases if country-specific social connectedness increases. This research is following up on contemporary literature and contributes to the explanation of the stock market participation puzzle on a macroeconomic scale.