IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v17y2024i2p82-d1340973.html
   My bibliography  Save this article

Quantifying Risk in Investment Decision-Making

Author

Listed:
  • Jaheera Thasleema Abdul Lathief

    (Department of Commerce Holy Cross College, Manonmaniam Sundaranar University, Tirunelveli 629002, Tamil Nadu, India)

  • Sunitha Chelliah Kumaravel

    (Department of Commerce Holy Cross College, Manonmaniam Sundaranar University, Tirunelveli 629002, Tamil Nadu, India)

  • Regina Velnadar

    (Department of Commerce Holy Cross College, Manonmaniam Sundaranar University, Tirunelveli 629002, Tamil Nadu, India)

  • Ravi Varma Vijayan

    (Government Arts and Science College, Bharathiar University, Coimbatore 641109, Tamil Nadu, India)

  • Satyanarayana Parayitam

    (Department of Management and Marketing, Charlton College of Business, University of Massachusetts Dartmouth, Dartmouth, MA 02745, USA)

Abstract

In the wake of inflation, investors engage in identifying inflation hedging instruments. Most importantly, investors attempt to minimize risk and maximize returns to safeguard against inflation. Risk plays an important role in this process. The objective of this research is to examine the relationship between risk factors and investor behavior, particularly in the Indian context. Based on the theory of planned behavior (TPB), we built a conceptual model investigating the intricate relationship between risk factors, investment priority, investment strategy and investment decision-making. We collected data from 537 respondents in the southern region of India and analyzed the data using Partial Least Squares Structural Equation Modeling (PLS-SEM). The result indicate: (i) risk factors (risk capacity, risk tolerance, and risk propensity) are positively related to investment priority and investment strategy, (ii) investment priority is positively related to investment decision-making, (iii) conscientiousness moderates the relationship between investment priority and investment decision-making, (iv) investment strategy is positively related to investment decision-making. Finally, the practical and theoretical implications for research are discussed.

Suggested Citation

  • Jaheera Thasleema Abdul Lathief & Sunitha Chelliah Kumaravel & Regina Velnadar & Ravi Varma Vijayan & Satyanarayana Parayitam, 2024. "Quantifying Risk in Investment Decision-Making," JRFM, MDPI, vol. 17(2), pages 1-20, February.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:2:p:82-:d:1340973
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/17/2/82/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1911-8074/17/2/82/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Prabhas Kumar Rath, 2023. "Nexus Between Indian Financial Markets and Macro-economic Shocks: A VAR Approach," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(1), pages 131-164, March.
    2. Hallahan, Terrence & Faff, Robert & McKenzie, Michael, 2003. "An exploratory investigation of the relation between risk tolerance scores and demographic characteristics," Journal of Multinational Financial Management, Elsevier, vol. 13(4-5), pages 483-502, December.
    3. Zeeshan Ahmed & Shahid Rasool & Qasim Saleem & Mubashir Ali Khan & Shamsa Kanwal, 2022. "Mediating Role of Risk Perception Between Behavioral Biases and Investor’s Investment Decisions," SAGE Open, , vol. 12(2), pages 21582440221, May.
    4. Chou, Hsin-I & Li, Mingyi & Yin, Xiangkang & Zhao, Jing, 2021. "Overconfident Institutions and Their Self-Attribution Bias: Evidence from Earnings Announcements," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(5), pages 1738-1770, August.
    5. Yılmaz Bayar & H. Funda Sezgin & Ömer Faruk Öztürk & Mahmut Ünsal Şaşmaz, 2020. "Financial Literacy and Financial Risk Tolerance of Individual Investors: Multinomial Logistic Regression Approach," SAGE Open, , vol. 10(3), pages 21582440209, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sergey Yekimov, 2024. "Using Fermat-Torricelli points in assessing investment risks," Papers 2408.09267, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Heena Thanki & Sweety Shah & Vrajlal Sapovadia & Ankit D. Oza & Dumitru Doru Burduhos-Nergis, 2022. "Role of Gender in Predicting Determinant of Financial Risk Tolerance," Sustainability, MDPI, vol. 14(17), pages 1-13, August.
    2. Nur Alya Afiqah Binti Mahat & Wei-Theng Lau, 2023. "Financial Literacy, Experience, Risk Tolerance and Investment Behavior: Observations during Pandemic," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(10), pages 558-573, October.
    3. Ali, Muhammad Arsalan & Rehman, Khalil ur & Maqbool, Adnan & Hussain, Shahid, 2021. "The Impact of Behavioral Finance Factors and the Mediating Effect of Investment Behavior on Individual’s Financial Well-being: Empirical Evidence from Pakistan," Journal of Accounting and Finance in Emerging Economies, CSRC Publishing, Center for Sustainability Research and Consultancy Pakistan, vol. 7(2), pages 325-336, June.
    4. Lemaster, Philip & Strough, JoNell, 2014. "Beyond Mars and Venus: Understanding gender differences in financial risk tolerance," Journal of Economic Psychology, Elsevier, vol. 42(C), pages 148-160.
    5. Yao, Rui & Sharpe, Deanna L. & Wang, Feifei, 2011. "Decomposing the age effect on risk tolerance," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(6), pages 879-887.
    6. Aren Selim & Hamamci Hatice Nayman, 2023. "Mediating Effect of Pleasure-Seeking and Loss Aversion in the Relationship Between Phantasy and Financial Risk Tolerance and the Moderating Role of Confidence," Folia Oeconomica Stetinensia, Sciendo, vol. 23(2), pages 24-44, December.
    7. Stoian, Andreea & Vintila, Nicoleta & Iorgulescu, Filip & Cepoi, Cosmin Octavian & Dina Manolache, Aurora, 2021. "How Risk Aversion and Financial Literacy Shape Young Adults’ Investment Preferences," MPRA Paper 109755, University Library of Munich, Germany.
    8. Júlio Lobão, 2024. "The Influence of Gender on Individuals’ Ability to Predict Their Own Risk Tolerance: Evidence from a European Country," Administrative Sciences, MDPI, vol. 14(3), pages 1-16, March.
    9. Naveed Hussain Shah & Waqar Khalid & Saifullah Khan & Muhammad Arif & Muhammad Asad Khan, 2020. "An Empirical Analysis of Financial Risk Tolerance and Demographic Factors of Business Graduates in Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 10(4), pages 220-234.
    10. Sandip Chattopadhyay & Ranjan Dasgupta, 2015. "Demographic and Socioeconomic Impact on Risk Attitudes of the Indian Investors - An Empirical Study," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(4), pages 601-623.
    11. Lin Li, 2023. "Investigating risk assessment in post-pandemic household cryptocurrency investments: an explainable machine learning approach," Journal of Asset Management, Palgrave Macmillan, vol. 24(4), pages 255-267, July.
    12. Karthikeyan Shanmugam & Vijayabanu Chidambaram & Satyanarayana Parayitam, 2023. "Relationship Between Big-Five Personality Traits, Financial Literacy and Risk Propensity: Evidence from India," IIM Kozhikode Society & Management Review, , vol. 12(1), pages 85-101, January.
    13. Zandri Koekemoer, 2019. "The influence of the level of education on investors risk tolerance level," Proceedings of Economics and Finance Conferences 9511449, International Institute of Social and Economic Sciences.
    14. Haritha P H, 2024. "The Effect of Heuristics on Indian Stock Market Investors: Investor Sentiment as a Mediator," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 49(1), pages 43-61, February.
    15. Jeongseok Song & Doojin Ryu, 2018. "Aging effects on consumption risk-sharing channels in European countries," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 36(2), pages 585-617.
    16. Stamatios Tsigos & Kevin Daly, 2016. "“Fair go” for all? Wealth and Risk Aversion of Australian Households," Australian Economic Papers, Wiley Blackwell, vol. 55(3), pages 274-300, September.
    17. Sune Ferreira & Zandri Dickason-Koekemoer, 2019. "The Relationship Between Depositor Behaviour and Risk Tolerance in a South African Context," Advances in Decision Sciences, Asia University, Taiwan, vol. 23(3), pages 36-55, September.
    18. Brooks, Chris & Williams, Louis, 2022. "When it comes to the crunch: Retail investor decision-making during periods of market volatility," International Review of Financial Analysis, Elsevier, vol. 80(C).
    19. Heenkenda, Shirantha, 2014. "Determination of Financial Risk Tolerance among Different Household Sectors in Sri Lanka," MPRA Paper 67324, University Library of Munich, Germany.
    20. Biswajit Prasad Chhatoi & Munmun Mohanty, 2023. "Discriminants of risk tolerance among Indian investors: a dichotomous discriminant approach," International Journal of Managerial and Financial Accounting, Inderscience Enterprises Ltd, vol. 15(1), pages 112-134.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jjrfmx:v:17:y:2024:i:2:p:82-:d:1340973. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.