Study of Investment Decisions and Personal Characteristics through Risk Tolerance: Moderating Role of Investment Experience
DOI:
https://doi.org/10.34069/AI/2020.34.10.6Palabras clave:
Extraversion, Introversion, Investment Experience, PLS-SEM, Risk Tolerance.Resumen
Investment decisions could be affected by behavioral biases associated with personal characteristics. This study empirically investigates the effect of personal characteristics on investors’ investment decision through risk tolerance. Furthermore, investment experience moderates the nexus between personal characteristics and risk tolerance. The scale consisting of 24 items was used related to selected constructs and variables. Data was collected form 175 individual investors of Pakistan Stock Exchange. PLS-SEM was used to make statistical analysis. The findings indicate that extraversion has substantial positive impact on investment decisions. Moreover, risk tolerance partially mediates the relationship between extroversion and investment decisions. The relationship between introversion and investment decisions is negative and risk tolerance partially mediates the aforesaid relationship. Furthermore, it is statistically proved that investment experience substantially moderates the association between extraversion and risk tolerance. However, investment experience does not play any conditional role in the association between introversion and risk tolerance. This study can be helpful for financial advisors to provide best consultancy to their clients (investors), while considering their personal characteristics.
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Ahmad, M., Hassan, A., Mahmood, S., & Aslam, S. (2016). Impact of investor personality types with interaction effects of demographics on investment behavior: Evidence from Pakistan. Pakistan Journal of Commerce and Social Sciences, 10(3), 638–658.
Aini, N. S., & Lutfi, L. (2019). The influence of risk perception, risk tolerance, overconfidence, and loss aversion towards investment decision making. Journal of Economics, Business & Accountancy Ventura, 21(3), 401-413. https://doi.org/10.14414/jebav.v21i3.1663
Akhtar, F., Thyagaraj, K. S., & Das, N. (2018). The impact of social influence on the relationship between personality traits and perceived investment performance of individual investors: Evidence from Indian stock market. International Journal of Managerial Finance, 14(1), 130–148. https://doi.org/10.1108/IJMF-05-2016-0102
Ali, F. H. & Farooq, S., & Naqvi, F. N. (2020). Can cognitive crafting enhance business performance? The mediating role of employee ambidexterity in the context of small and medium enterprises. International Journal of Management Research and Emerging Sciences, 10(2), 85-95.
Ali, F. H. & Mehta, A. M. (2020). Is smartphone loafing energizing, creative, innovative and productive at the workplace? Academy of Marketing Studies Journal, 24(3), 1-13.
Ali, F. H. & Qazi, A. A. (2018). The role of creative self-efficacy and intrinsic motivation in delighting customers: The mediating role of positive psychological capital. Pakistan Journal of Commerce and Social Sciences, 12(1), 78-93.
Ali, F. H. & Qazi, A. A. (2019). Can social media platforms enable co-creation as a tool in political marketing? The South Asian context. South Asian Studies, 34(1), 81-102.
Aren, S., & Zengin, A. N. (2016). Influence of financial literacy and risk perception on choice of investment. Procedia. Social and Behavioral Sciences, 235, 656–663. https://doi.org/10.1016/j.sbspro.2016.11.047
Awais, M., Laber, M. F., Rasheed, N., & Khursheed, A. (2016). Impact of financial literacy and investment experience on risk tolerance and investment decisions: Empirical evidence from Pakistan. International Journal of Economics and Financial Issues, 6 (1), 73-79.
Baruah, M., & Parikh, A. K. (2018). Impact of risk tolerance and demographic factors on financial investment decision. GIS Business, 13(5), 31–40. https://doi.org/10.26643/gis.v13i5.3270
Chavali, K., & Mohanraj, M. P. (2016). Impact of demographic variables and risk tolerance on investment decisions: An empirical analysis. International Journal of Economics and Financial Issues,6(1), 169-175.
Chin, W. W., Peterson, R. A., & Brown, S. P. (2008). Structural equation modelling in marketing: Some practical reminders. Journal of Marketing Theory and Practice, 16(4), 287–298.
Czerwonka, M. (2019). Cultural, cognitive and personality traits in risk-taking behaviour: Evidence from Poland and the United States of America. Journal Economic Research, 32(1), 894–908. https://doi.org/10.1080/1331677X.2019.1588766
Dhiman, B., & Raheja, S. (2018). Do personality traits and emotional intelligence of investors determine their risk tolerance? Management and Labour Studies, 43(1–2), 88–99. https://doi.org/10.1177/0258042X17745184
Dickason, Z., Ferreira, S., & McMillan, D. (2018). Establishing a link between risk tolerance, investor personality and behavioural finance in South Africa. Cogent Economics & Finance, 6(1), 1519898. https://doi.org/10.1080/23322039.2018.1519898
Eysenck, H. J. (1950). Dimensions of personality. London. United Kingdom, Transaction Publishers.
Eysenck, H. J. (1982). Personality, genetics, and behavior: Selected papers. New York, NY: Praeger.
Fama, E. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383-417. doi:10.2307/2325486
Gambetti, E., & Giusberti, F. (2019). Personality, decision-making styles and investments. Journal of Behavioral and Experimental Economics, 80, 14–24. https://doi.org/10.1016/j.socec.2019.03.002
Hahn, E., Gottschling, J., & Spinath, F. M. (2012). Short measurements of personality – Validity and reliability of the GSOEP Big Five Inventory (BFI-S). Journal of Research in Personality, 46(3), 355–359. https://doi.org/10.1016/j.jrp.2012.03.008
Hair, J. F., Hult, G. T. M., Ringle, C., & Sarstedt, M. (2014). A primer on partial least squares structural equation modelling (PLS-SEM). Thousand Oaks, CA: Sage.
Hair, J. F., Hult, G. T. M., Ringle, C., & Sarstedt, M. (2017). A primer on partial least squares structural equation modelling (PLS-SEM) (2nd ed.). Thousand Oakes, CA: Sage.
Ibbotson, R. G., Idzorek, T. M., Kaplan, P. D., & Xiong, J. X. (2018). Popularity: Bridge between classical and behavioral finance. CFA Institute Research Foundation.
Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263-291. https://doi.org/10.2307/1914185
Kanagasabai, B., & Aggarwal, V. (2020). The mediating role of risk tolerance in the relationship between financial literacy and investment performance. Colombo Business Journal, 11(1), 83-104. https://doi.org/10.4038/cbj.v11i1.58
Kline, R.B. (2005), Methodology in the social sciences. NY: New York: SAGE.
Kourtidis, D., Ševi?, Z., & Chatzoglou, P. (2011). Investors’ trading activity: A behavioural perspective and empirical results. The Journal of Socio-Economics, 40(5), 548-557. https://doi.org/10.1016/j.socec.2011.04.008.
Kubilay, B., & Bayrakdaroglu, A. (2016). An empirical research on investor biases in financial decision-making, financial risk tolerance and financial personality. International Journal of Financial Research, 7(2), p.171. https://doi.org/10.5430/ijfr.v7n2p171
Liaqat, F., Mahmood, K., & Ali, F. H. (2020). Demographic and socio-economic differences in financial information literacy among university students. Information Development, 1-13. Advance online publication.
Lin, Z. (2018). Psychological Factors behind Risk-Taking Behaviors: Correlational Relations between Personality Traits and Financial Risk Tolerance (Master's Thesis). NYU Shanghai. https://shanghai.nyu.edu/sites/default/files/lin_zixuan_thesis_nyush_honors_2018.pdf
Lippi, A., & Rossi, S. (2020). Run for the hills: Italian investors' risk appetite before and during the financial crisis. International Journal of Bank Marketing, 38(5), 1195-1213.
Markowitz, H. M. (1952). Portfolio Selection. The Journal of Finance, 7, 77 – 91
Mehtab, F. (2019). MBTI personality types and risk perception of investors in India. Seshadripuram Journal of Social Sciences, 2(1), 30-43.
Mishra, R. (2018). Financial literacy, risk tolerance and stock market participation. Asian Economic and Financial Review, 8(12), 1457–1471.
https://doi.org/10.18488/journal.aefr.2018.812.1457.1471
Noguchi, K., Gohm, C. L., & Dalsky, D. J. (2006). Cognitive tendencies of focusing on positive and negative information. Journal of Research in Personality, 40(6), 891-910.
Nguyen, L., Gallery, G., & Newton, C. (2019). The joint influence of financial risk perception and risk tolerance on individual investment decision?making. Accounting & Finance, 59(S1), 747–771. https://doi.org/10.1111/acfi.12295
Oehler, A., Wendt, S., Wedlich, F., & Horn, M. (2018). Investors’ personality influences investment decisions: Experimental evidence on extraversion and neuroticism. Journal of Behavioral Finance, 19(1), 30–48. https://doi.org/10.1080/15427560.2017.1366495
Pak, O. & Mahmood, M. (2015). Impact of personality on risk tolerance and investment decisions. International Journal of Commerce and Management, 25(4), 370-384.
Perugini, M., & De Raad, B. (2001). Editorial: Personality and economic behaviour. European Journal of Personality, 15(S1), S1–S4. https://doi.org/10.1002/per.427
Pinjisakikool, T. (2018). The influence of personality traits on households’ financial risk tolerance and financial behaviour. Journal of Interdisciplinary Economics, 30(1), 32–54. https://doi.org/10.1177/0260107917731034
Powell, M., & Ansic, D. (1997). Gender differences in risk behaviour in financial decision-making: An experimental analysis. Journal of Economic Psychology, 18(6), 605–628.
Radin, M. (1932). The endless problem of corporate personality. Columbia Law Review, 32(4), 643–667.
Revelle, W. (2016). Hans Eysenck: Personality theorist. Personality and Individual Differences, 103, 32–39. https://doi.org/10.1016/j.paid.2016.04.00
Ricciardi, V., & Simon, H. K. (2000). What is behavioral finance? Business. Education & Technology Journal, 2(2), 1-9.
Robinson, D. L. (1986). A commentary on Gray’s critique of Eysenck’s theory. Personality and Individual Differences, 7(4), 461–468. https://doi.org/10.1016/0191-8869(86)90124-8
Rogers, J., Viding, E., & Chamorro-Premuzic, T. (2013). Instrumental and disinhibited financial risk taking: Personality and behavioural correlates. Personality and Individual Differences, 55(6), 645–649. https://doi.org/10.1016/j.paid.2013.05.011
Sadiq, M., & Amna, H. (2019). Impact of personality traits on risk tolerance and investors’ decision making. International Journal of Applied Behavioral Economics, 8(1), 1–20. https://doi.org/10.4018/IJABE.201901010
Salman, M., Khan, B., & Javed, A. (2020). Moderated mediation: The impact of heuristic representativeness bias on investment decision-making. Academic Journal of Social Sciences, 4(2), 354-363.
Weber, E. U., Blais, A.-R., & Betz, N. E. (2002). A domain-specific risk-attitude scale: Measuring risk perceptions and risk behaviors. Journal of Behavioral Decision Making, 15(4), 263–290. https://doi.org/10.1002/bdm.414
Wood, R., & Zaichkowsky, J. L. (2004). Attitudes and Trading Behavior of Stock Market Investors: A Segmentation Approach. Journal of Behavioral Finance, 5(3), 170–179. https://doi.org/10.1207/s15427579jpfm0503_5
Yao, R., Sharpe, D. L., & Wang, F. (2011). Decomposing the age effect on risk tolerance. The Journal of Socio-Economics, 40(6), 879–887. https://doi.org/10.1016/j.socec.2011.08.023
Aini, N. S., & Lutfi, L. (2019). The influence of risk perception, risk tolerance, overconfidence, and loss aversion towards investment decision making. Journal of Economics, Business & Accountancy Ventura, 21(3), 401-413. https://doi.org/10.14414/jebav.v21i3.1663
Akhtar, F., Thyagaraj, K. S., & Das, N. (2018). The impact of social influence on the relationship between personality traits and perceived investment performance of individual investors: Evidence from Indian stock market. International Journal of Managerial Finance, 14(1), 130–148. https://doi.org/10.1108/IJMF-05-2016-0102
Ali, F. H. & Farooq, S., & Naqvi, F. N. (2020). Can cognitive crafting enhance business performance? The mediating role of employee ambidexterity in the context of small and medium enterprises. International Journal of Management Research and Emerging Sciences, 10(2), 85-95.
Ali, F. H. & Mehta, A. M. (2020). Is smartphone loafing energizing, creative, innovative and productive at the workplace? Academy of Marketing Studies Journal, 24(3), 1-13.
Ali, F. H. & Qazi, A. A. (2018). The role of creative self-efficacy and intrinsic motivation in delighting customers: The mediating role of positive psychological capital. Pakistan Journal of Commerce and Social Sciences, 12(1), 78-93.
Ali, F. H. & Qazi, A. A. (2019). Can social media platforms enable co-creation as a tool in political marketing? The South Asian context. South Asian Studies, 34(1), 81-102.
Aren, S., & Zengin, A. N. (2016). Influence of financial literacy and risk perception on choice of investment. Procedia. Social and Behavioral Sciences, 235, 656–663. https://doi.org/10.1016/j.sbspro.2016.11.047
Awais, M., Laber, M. F., Rasheed, N., & Khursheed, A. (2016). Impact of financial literacy and investment experience on risk tolerance and investment decisions: Empirical evidence from Pakistan. International Journal of Economics and Financial Issues, 6 (1), 73-79.
Baruah, M., & Parikh, A. K. (2018). Impact of risk tolerance and demographic factors on financial investment decision. GIS Business, 13(5), 31–40. https://doi.org/10.26643/gis.v13i5.3270
Chavali, K., & Mohanraj, M. P. (2016). Impact of demographic variables and risk tolerance on investment decisions: An empirical analysis. International Journal of Economics and Financial Issues,6(1), 169-175.
Chin, W. W., Peterson, R. A., & Brown, S. P. (2008). Structural equation modelling in marketing: Some practical reminders. Journal of Marketing Theory and Practice, 16(4), 287–298.
Czerwonka, M. (2019). Cultural, cognitive and personality traits in risk-taking behaviour: Evidence from Poland and the United States of America. Journal Economic Research, 32(1), 894–908. https://doi.org/10.1080/1331677X.2019.1588766
Dhiman, B., & Raheja, S. (2018). Do personality traits and emotional intelligence of investors determine their risk tolerance? Management and Labour Studies, 43(1–2), 88–99. https://doi.org/10.1177/0258042X17745184
Dickason, Z., Ferreira, S., & McMillan, D. (2018). Establishing a link between risk tolerance, investor personality and behavioural finance in South Africa. Cogent Economics & Finance, 6(1), 1519898. https://doi.org/10.1080/23322039.2018.1519898
Eysenck, H. J. (1950). Dimensions of personality. London. United Kingdom, Transaction Publishers.
Eysenck, H. J. (1982). Personality, genetics, and behavior: Selected papers. New York, NY: Praeger.
Fama, E. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383-417. doi:10.2307/2325486
Gambetti, E., & Giusberti, F. (2019). Personality, decision-making styles and investments. Journal of Behavioral and Experimental Economics, 80, 14–24. https://doi.org/10.1016/j.socec.2019.03.002
Hahn, E., Gottschling, J., & Spinath, F. M. (2012). Short measurements of personality – Validity and reliability of the GSOEP Big Five Inventory (BFI-S). Journal of Research in Personality, 46(3), 355–359. https://doi.org/10.1016/j.jrp.2012.03.008
Hair, J. F., Hult, G. T. M., Ringle, C., & Sarstedt, M. (2014). A primer on partial least squares structural equation modelling (PLS-SEM). Thousand Oaks, CA: Sage.
Hair, J. F., Hult, G. T. M., Ringle, C., & Sarstedt, M. (2017). A primer on partial least squares structural equation modelling (PLS-SEM) (2nd ed.). Thousand Oakes, CA: Sage.
Ibbotson, R. G., Idzorek, T. M., Kaplan, P. D., & Xiong, J. X. (2018). Popularity: Bridge between classical and behavioral finance. CFA Institute Research Foundation.
Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263-291. https://doi.org/10.2307/1914185
Kanagasabai, B., & Aggarwal, V. (2020). The mediating role of risk tolerance in the relationship between financial literacy and investment performance. Colombo Business Journal, 11(1), 83-104. https://doi.org/10.4038/cbj.v11i1.58
Kline, R.B. (2005), Methodology in the social sciences. NY: New York: SAGE.
Kourtidis, D., Ševi?, Z., & Chatzoglou, P. (2011). Investors’ trading activity: A behavioural perspective and empirical results. The Journal of Socio-Economics, 40(5), 548-557. https://doi.org/10.1016/j.socec.2011.04.008.
Kubilay, B., & Bayrakdaroglu, A. (2016). An empirical research on investor biases in financial decision-making, financial risk tolerance and financial personality. International Journal of Financial Research, 7(2), p.171. https://doi.org/10.5430/ijfr.v7n2p171
Liaqat, F., Mahmood, K., & Ali, F. H. (2020). Demographic and socio-economic differences in financial information literacy among university students. Information Development, 1-13. Advance online publication.
Lin, Z. (2018). Psychological Factors behind Risk-Taking Behaviors: Correlational Relations between Personality Traits and Financial Risk Tolerance (Master's Thesis). NYU Shanghai. https://shanghai.nyu.edu/sites/default/files/lin_zixuan_thesis_nyush_honors_2018.pdf
Lippi, A., & Rossi, S. (2020). Run for the hills: Italian investors' risk appetite before and during the financial crisis. International Journal of Bank Marketing, 38(5), 1195-1213.
Markowitz, H. M. (1952). Portfolio Selection. The Journal of Finance, 7, 77 – 91
Mehtab, F. (2019). MBTI personality types and risk perception of investors in India. Seshadripuram Journal of Social Sciences, 2(1), 30-43.
Mishra, R. (2018). Financial literacy, risk tolerance and stock market participation. Asian Economic and Financial Review, 8(12), 1457–1471.
https://doi.org/10.18488/journal.aefr.2018.812.1457.1471
Noguchi, K., Gohm, C. L., & Dalsky, D. J. (2006). Cognitive tendencies of focusing on positive and negative information. Journal of Research in Personality, 40(6), 891-910.
Nguyen, L., Gallery, G., & Newton, C. (2019). The joint influence of financial risk perception and risk tolerance on individual investment decision?making. Accounting & Finance, 59(S1), 747–771. https://doi.org/10.1111/acfi.12295
Oehler, A., Wendt, S., Wedlich, F., & Horn, M. (2018). Investors’ personality influences investment decisions: Experimental evidence on extraversion and neuroticism. Journal of Behavioral Finance, 19(1), 30–48. https://doi.org/10.1080/15427560.2017.1366495
Pak, O. & Mahmood, M. (2015). Impact of personality on risk tolerance and investment decisions. International Journal of Commerce and Management, 25(4), 370-384.
Perugini, M., & De Raad, B. (2001). Editorial: Personality and economic behaviour. European Journal of Personality, 15(S1), S1–S4. https://doi.org/10.1002/per.427
Pinjisakikool, T. (2018). The influence of personality traits on households’ financial risk tolerance and financial behaviour. Journal of Interdisciplinary Economics, 30(1), 32–54. https://doi.org/10.1177/0260107917731034
Powell, M., & Ansic, D. (1997). Gender differences in risk behaviour in financial decision-making: An experimental analysis. Journal of Economic Psychology, 18(6), 605–628.
Radin, M. (1932). The endless problem of corporate personality. Columbia Law Review, 32(4), 643–667.
Revelle, W. (2016). Hans Eysenck: Personality theorist. Personality and Individual Differences, 103, 32–39. https://doi.org/10.1016/j.paid.2016.04.00
Ricciardi, V., & Simon, H. K. (2000). What is behavioral finance? Business. Education & Technology Journal, 2(2), 1-9.
Robinson, D. L. (1986). A commentary on Gray’s critique of Eysenck’s theory. Personality and Individual Differences, 7(4), 461–468. https://doi.org/10.1016/0191-8869(86)90124-8
Rogers, J., Viding, E., & Chamorro-Premuzic, T. (2013). Instrumental and disinhibited financial risk taking: Personality and behavioural correlates. Personality and Individual Differences, 55(6), 645–649. https://doi.org/10.1016/j.paid.2013.05.011
Sadiq, M., & Amna, H. (2019). Impact of personality traits on risk tolerance and investors’ decision making. International Journal of Applied Behavioral Economics, 8(1), 1–20. https://doi.org/10.4018/IJABE.201901010
Salman, M., Khan, B., & Javed, A. (2020). Moderated mediation: The impact of heuristic representativeness bias on investment decision-making. Academic Journal of Social Sciences, 4(2), 354-363.
Weber, E. U., Blais, A.-R., & Betz, N. E. (2002). A domain-specific risk-attitude scale: Measuring risk perceptions and risk behaviors. Journal of Behavioral Decision Making, 15(4), 263–290. https://doi.org/10.1002/bdm.414
Wood, R., & Zaichkowsky, J. L. (2004). Attitudes and Trading Behavior of Stock Market Investors: A Segmentation Approach. Journal of Behavioral Finance, 5(3), 170–179. https://doi.org/10.1207/s15427579jpfm0503_5
Yao, R., Sharpe, D. L., & Wang, F. (2011). Decomposing the age effect on risk tolerance. The Journal of Socio-Economics, 40(6), 879–887. https://doi.org/10.1016/j.socec.2011.08.023
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2020-11-23
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Perveen, N., Ahmad, A., Usman, M., & Liaqat, F. (2020). Study of Investment Decisions and Personal Characteristics through Risk Tolerance: Moderating Role of Investment Experience. Amazonia Investiga, 9(34), 57–68. https://doi.org/10.34069/AI/2020.34.10.6
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