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Impact of Personality Traits on Risk Tolerance and Investors' Decision Making

Author

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  • Misbah Sadiq

    (Al Qasimia University, Sharja, UAE)

  • Hareem Amna

    (Quaid-i-Azam University, Islamabad, Pakistan)

Abstract

This article investigates the relationships between personality traits, risk tolerance, and investment decisions and highlights the importance of personality traits in determining risk tolerance levels and investment decisions. Personality traits are classified according to the Big Five taxonomy: extroversion, agreeableness, conscientiousness, neuroticism and openness to experience. Primary data was collected from 330 individual investors from Islamabad. Descriptive analysis of the data was run on SPSS, reliability of the constructs was assessed through Confirmatory Factor Analysis (CFA), whereas, Structural Equational Modelling (SEM) was used to conduct hypothesis testing through path analysis. As per the results of CFA, the constructs were found to be reliable. Mediation analysis confirmed that risk tolerance partially mediated the relationship between personality traits and investment decisions. This study and results have theoretical and practical implications for the investors, financial planners and managers.

Suggested Citation

  • Misbah Sadiq & Hareem Amna, 2019. "Impact of Personality Traits on Risk Tolerance and Investors' Decision Making," International Journal of Applied Behavioral Economics (IJABE), IGI Global, vol. 8(1), pages 1-20, January.
    • Handle: RePEc:igg:jabe00:v:8:y:2019:i:1:p:1-20
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    Cited by:

    1. Jiaming Wang & Pin-Chao Liao, 2021. "Re-Thinking the Mediating Role of Emotional Valence and Arousal between Personal Factors and Occupational Safety Attention Levels," IJERPH, MDPI, vol. 18(11), pages 1-20, May.
    2. Saleh M. Shehata & Alaa M. Abdeljawad & Loqman A. Mazouz & Lamia Yousif Khalaf Aldossary & Maryam Y. Alsaeed & Mohamed Noureldin Sayed, 2021. "The Moderating Role of Perceived Risks in the Relationship between Financial Knowledge and the Intention to Invest in the Saudi Arabian Stock Market," IJFS, MDPI, vol. 9(1), pages 1-16, January.
    3. Evodia Mankuroane & Wilme van Heerden & Sune Ferreira-Schenk & Zandri Dickason-Koekemoer, 2022. "Psychological and Behavioural Drivers of Short-Term Investment Intentions," International Journal of Economics and Financial Issues, Econjournals, vol. 12(4), pages 19-27, July.
    4. Yogita Singh & Mohd. Adil & S. M. Imamul Haque, 2023. "Personality traits and behaviour biases: the moderating role of risk-tolerance," Quality & Quantity: International Journal of Methodology, Springer, vol. 57(4), pages 3549-3573, August.
    5. Muhammad Arsalan Hashmi & M Abdullah & Tariq Jalees & Ume Amen & Muhammad Arsalan, 2023. "Do Personality Traits and Cultural Norms Influence Investment Decisions? The Role of Financial Literacy and Investor Overconfidence," Journal of Economic Impact, Science Impact Publishers, vol. 5(1), pages 106-113.

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