Inspiring the leaders of tomorrow

Professor Yulia Merkoulova’s research into the impact of financial literacy on household wealth is helping solve a perplexing question: Why don’t more people invest in the stock market?

Despite ample evidence showing stocks outperform most other investment opportunities in the long term, the number of individuals trading on the stock market remains surprisingly low.

The conundrum is commonly known as the ‘stock market participation puzzle’ – and it’s a quandary Monash Business School Professor Yulia Merkoulova is hoping to solve.

Professor Merkoulova and colleague Professor Chris Veld have conducted research highlighting the drastic impact lack of investment knowledge has on long-term household wealth.

The pair used a representative survey to measure individuals’ knowledge of financial concepts and awareness of the risk-return trade-offs that exist in the stock market.

“Based on our results, we introduce the concept of ‘stock return ignorance’ - individuals not being able to make any return prediction, making overly optimistic predictions, or having unlikely beliefs about stock returns,” Prof Merkoulova said.

More than half of the survey respondents suffered from stock return ignorance. The findings also revealed the devastating impact that lower stock market participation has on women’s long-term financial security.

“Our analysis shows that a significant part of the difference in stock market participation between men and women can be explained by differences in stock return ignorance,” she said.

“However, the end result is that these financial decisions are very costly and can further disadvantage women by extending the gender pay gap to a gender wealth gap.”

The work has earned Prof Merkoulova a Dean’s Award for Research Excellence.

“I’ve witnessed a huge improvement in research and PhD quality at Monash Business School, with many fields including banking and finance now on par with the world leading universities. I’m happy to be part of this trend,” she said.

After 20 years working in the area of household and behavioural finance, Professor Merkoulova remains passionate about the field of research – and about sharing her expertise with a new generation of researchers in her role as graduate research supervisor.

Her efforts have also earned her a 2023 Dean's Award for Excellence in Graduate Research Supervision.

“The most enjoyable part of this work is to see the development of a graduate student from someone with very little experience and knowledge about doing research into a young scholar capable of running their own research project independently,” she said.

“This is something that I hope every one of my students ends up getting - the skills and confidence to be an independent researcher.”