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Prior perceived losses and investment objectives after stock market crisis: a moderated-mediation model of risk tolerance and loss aversion

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  • Mohammad Tariqul Islam Khan

    (Multimedia University)

Abstract

This study explores whether prior perceived losses affect investment objectives via loss aversion as a mediator and whether the indirect effect is moderated by risk tolerance in a moderated-mediation model. Using retail investors who witnessed a market crash in Bangladesh and experienced losses, the model is tested by employing regression analyses and conditional process. The analyses reveal that prior perceived losses indirectly affect investment objectives (earning a higher expected return and building a financial reserve for future expenses) via mediation of loss aversion. Moderated-mediation model shows that for high-risk-tolerant investors, prior perceived losses indirectly affect investors to invest more for achieving a higher expected return objective and less to achieving building a financial reserve for future expenses, via a low level of loss aversion. These suggest that risk-tolerant investors continue to invest to earn a higher expected return even though they experienced prior losses and are loss-averse.

Suggested Citation

  • Mohammad Tariqul Islam Khan, 2022. "Prior perceived losses and investment objectives after stock market crisis: a moderated-mediation model of risk tolerance and loss aversion," SN Business & Economics, Springer, vol. 2(7), pages 1-22, July.
  • Handle: RePEc:spr:snbeco:v:2:y:2022:i:7:d:10.1007_s43546-022-00259-6
    DOI: 10.1007/s43546-022-00259-6
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    More about this item

    Keywords

    Prior perceived losses; Loss aversion; Risk tolerance; Investment objectives; Retail investors; Bangladesh;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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