Investigating the Role of Investors' Personality, Financial Literacy, and Demographic Characteristics on Risk-Taking in the Capital Market
Subject Areas : Financial and Behavioral Researches in Accounting
Hamid Abbasi
1
,
امیر محمدزاده
2
,
mohsen torabian
3
1 -
2 - دانشیار و عضو هئیت علمی دانشگاه آزاد
3 - In Assistant Professor of Math/Faculty of Basic Sciences, University of Takestan
Keywords: Risk Taking, Personality Traits, Financial Literacy, Demographic Factors, Behavioral Finance,
Abstract :
In the present study, the effect of personality on the trading behavior of real investors in the Tehran Stock Exchange was investigated using the five-factor personality model. Also, financial literacy and demographic factors such as age, gender, education, income, and experience in the stock exchange were considered as influential variables. This study is considered a descriptive and survey study of an applied type, and its statistical population includes 280 active investors in the Tehran Stock Exchange market who completed a researcher-made questionnaire online. The analytical tools used include SEM structural equations and Smart PLS4 software, which were used to test the research hypotheses after confirming validity and reliability. The results of this study indicate that financial literacy has a positive and significant effect on investors' risk-taking and show that financial knowledge can lead to better investment decisions. On the other hand, in the five-factor personality model, the two dimensions of openness to experience and extraversion had a significant effect on risk-taking, while other dimensions of this model, including adaptability, conscientiousness, and neuroticism, did not show a significant effect. In addition, demographic factors such as gender, education, and experience in the stock market also had a significant effect on investors' risk-taking, while other factors such as age, income, and occupation did not have a significant effect. Overall, the findings show that personality traits, financial literacy, and demographic factors significantly predict about 69.8 percent of risk-taking behavior. these factors can help improve investment returns.
Ainabadi, J., Khoshfetrat, N., & Baba Khani Qazijahani, A. (2022). Investigating the risk tolerance of investors in financial markets and its relationship with financial literacy. Journal of Accounting and Management Perspective, 5(72), 86-95. (In Persian)
Akhtar, F., & Das, N. (2020). Investor personality and investment performance: from the perspective of psychological traits. Qualitative Research in financial markets, 12(3), 333-352.
Akhtar, M., & Malik, M. U. (2023). Personality traits and investor risk behavior: moderating role of financial literacy. Managerial Finance, 49(5), 884-905.
Anderson, A., Baker, F., & Robinson, D. T. (2017). Precautionary savings, retirement planning and misperceptions of financial literacy. Journal of financial economics, 126(2), 383-398.
Aren, S., & Canikli, S. (2018, July). The effect of financial literacy and risk perception on investment choices of individual investors. In 8th International Conference on Leadership, Technology, Innovation and Business Management, July (pp. 12-14).
Baker, H. K., & Ricciardi, V. (2015). Understanding behavioral aspects of financial planning and investing. Journal of financial Planning, 28(3), 22-26.
Banagan, E. J., Vergara, T. M. B., & Bueno, D. C. (2021). Financial management literacy: A cross-sectional factor analysis among graduate students and professionals. Institutional Multidisciplinary Research and Development Journal, 4, 1-21.
Bellofatto A, D’Hondt C, De W R. (2018). Subjective financial literacy and retail investors’ behavior. Journal of Banking and Finance. 92 (2018). 168–181.
Borden, L. M., Lee, S. A., Serido, J., & Collins, D. (2008). Changing college students’ financial knowledge, attitudes, and behavior through seminar participation. Journal of Family and Economic Issues, 29(1), 23-40.
Brooks, C., & Williams, L. (2021). The impact of personality traits on attitude to financial risk. Research in International Business and Finance, 58, 101501.
Costa, P.T., & McCrae, R.R. (2003). NEO-FFI: NEO five factor inventory, psychological assessment resources, Lutz, FL
De Bortoli, D., da Costa Jr, N., Goulart, M., & Campara, J. (2019). Personality traits and investor profile analysis: A behavioral finance study. PloS one, 14(3), e0214062.
Ebrahimi Sarv Oliya, M. H. and Sabunchi, A. (2019). The Demographical Factors Role in Explanation of Retail Investors’ Financial Risk-Tolerance and Their Risk-Taking Behavior. Journal of Investment Knowledge, 8(32), 217-234. (In Persian)
Firth, C., Stewart, N., Antoniou, C., & Leake, D. (2023). The effects of personality and IQ on portfolio outcomes. Finance Research Letters, 51, 103464.
Garg, N., & Singh, S. (2018). Financial literacy among youth. International journaL of sociaL economics, 45(1), 173-186.
Ghisari, R.Salehi, A., & Ghobadi, S. (2021). Modeling the role of behavioral characteristics and financial literacy of real investors on financial management behavior in the Iranian stock market.Journal Of Financial Economics, 15(54), 325-353. (In Persian)
Grohmann A, Kluhs T, Menkhoff L. (2018). Does financial literacy improve financial inclusion? Cross country evidence. World Development. 111 (2018). 84– 96
Grohmann, A. (2018). » Financial literacy and financial behavior: Evidence from the emerging Asian middle class«. Pacific-Basin Finance Journal. 48(2018). 129- 143.
Habibi, A., & Kolahi, B. (2022). Structural equation modeling and factor analysis. Tehran: Jihad University, 2nd edition. (In Persian)
Hair Jr, J. F., Hult, G. T. M., Ringle, C. M., Sarstedt, M., Danks, N. P., & Ray, S. (2021). Partial least squares structural equation modeling (PLS-SEM) using R: A workbook (p. 197). Springer Nature.
Hair, J. F., Hult, G. T. M., Ringle, C. M., and Sarstedt, M. (2017). A Primer on Partial Least Squares Structural Equation Modeling (PLS-SEM), 2nd Ed., Sage: Thousand Oaks.
Hair, J. F., Ringle, C. M., & Sarstedt, M. (2013). Partial Least Squares Structural Equation Modeling: Rigorous Applications, Better Results and Higher Acceptance. Long Range Planning, 46(1–2), 1–12.
Hemrajani, P., Rajni and Dhiman, R., 2024. Retail investors’ financial risk tolerance and risk-taking behaviour: The role of psychological factors. FIIB Business Review, 13(1), pp.87-105.
Henseler, J., Dijkstra, T. K., Sarstedt, M., Ringle, C. M., Diamantopoulos, A., Straub, D. W & Calantone, R. J. (2014). Common beliefs and reality about partial least squares. Organizational Research Methods, 17(2), 182-209.
Henseler, J., Ringle, C. M., & Sinkovics, R. R. (2009). The use of partial least squares path modeling in international marketing. In New challenges to international marketing. Emerald Group Publishing Limited.
Hilgert, M. A., Hogarth, J. M., & Beverly, S. G. (2003). Household financial management: The connection between knowledge and behavior. Fed. Res. Bull., 89, 309.
Hogarth, J., & Hilgert, M. A. (2002). Financial literacy and family and consumer sciences. Journal of Family and Consumer Sciences: From Research to Practice, 94(1), 15–28.
https://archive.conscientiabeam.com/index.php/29/article/view/3016
Isidore, R. and Arun, C.J., 2022. The Influence of Investors’ Personality on Decision Making in the Secondary Equity Market–Big Five Personality Model. The Economics and Finance Letters, 9(1), pp.69-77.
Laalbar, Ali, Mirzaei, Mehdi, Khan Kesh, Nasrin. (2024). Examining the Role of Psychological Characteristics in the Relationship between Investor Personality and Investment Performance.Financial and Behavioral Researches in Accounting, 4(3), 23-42. (In Persian)
Lusardi, A., & Mitchell, O. S. (2017). How ordinary consumers make complex economic decisions: Financial literacy and retirement readiness. Quarterly Journal of Finance, 7(03), 1750008.
Lynn, M. (2021). Effects of the Big Five personality traits on tipping attitudes, motives, and behaviors. International Journal of Hospitality Management, 92, 102722.
Malhotra, N., & Baag, P. (2021). Finance literacy as a tool for microfinancing: A literature review. International Journal of Business and Economics, 6(2), 189-215.
Manafe, J. D. (2021). The Effect of Financial Knowledge, Financial Experience and Spiritual Intelligence on Investment Planning Behavior. Jurnal Ekonomi dan Bisnis Jagaditha, 8(2), 209-214.
Mandell, L. (2008). The financial literacy of young American adults. The jumpstart coalition for personal financial literacy, 163-183.
Mirbozorgi, S. P., et al. (2022). Explaining a suitable model of investors' risk tolerance based on personality traits. Financial Accounting and Auditing Researches, 14(53), 135-162. (In Persian)
Mirzazadeh, Z., Yazdani, S., Khan Mohammadi, M. H., & Mahmoudian Dashtnai, T. (2023). Investigating the mediating role of factors influencing behavior (risk tolerance, self-confidence, and strategic thinking) in the relationship between emotional intelligence and the quality of judgment and decision-making by investors. Investment Studies, 12(48), 637-670. (In Persian)
Mounaa A, Anis J. (2017). Financial literacy in Tunisia: Its determinants and its implications on investment behavior. Research in International Business and Finance. 39 (2017). 568–577.
Mousavi Shiri, S. M., Bakhshian, A., & Barati, H. (2015). The impact of emotional intelligence on the quality of decision making of investors in Tehran Stock Exchange. Investment Knowledge, 5(17), 99-112. (In Persian)
Nayebmohseni, S., Khalifehsultani, S. A. and Hejazi, R. (2022). Developing a Behavioral Model of Individual Investors’ Decision-making in the Iranian Capital Market. Financial Research Journal, 23(4), 625-652. (In Persian)
NazariPour M, Zakizadeh B, Afshar A, and Mohammadi A. (2020) .Investigating the Investors' Behavior in Tehran Stock Exchange based on BB&K Five-Way Model. JNIP; 6 (10):1-14. (In Persian)
Brooks, C., Sangiorgi, I., Hillenbrand, C., & Money, K. (2018). Why are older investors less willing to take financial risks? International Review of Financial Analysis, 56, 52-72.
Nazaripour, M. and Zakizadeh, B. (2022). The Moderating Effects of Investors' Personality on the Relationship between the Uses of Financial Advice Service and Trading. Financial Research Journal, 24(4), 655-678. (In Persian)
Olsen, R. (1997) "Investment risk: The expert's perspective", Financial Analysis Journal, Vol. 53, No.2, pp.62-66.
Rehman, K., & Mia, M. A. (2024). Determinants of financial literacy: a systematic review and future research directions. Future Business Journal, 10(1), 75.
Ringle, C. M., Wende, S., and Becker, J.-M. 2024. "SmartPLS 4." Bönningstedt: SmartPLS, https://www.smartpls.com
Roshangarzadeh, A., Dastgheer, S., & Rahman, A. (2023). The effect of financial literacy on overconfidence biases and collective behavior and its impact on the performance of investors in the Tehran Stock Exchange using structural equation modeling. Capital Market Analysis Quarterly, 3(2), 1-30. (In Persian)
Sahi, S.K. and Kalra, S.K., 2013. Measuring financial risk taking using a dual preference approach for determination of financial satisfaction.
Saleem, S., Mahmood, F., Usman, M., Bashir, M., & Shabbir, R. (2021). Determinants of investment behavior in mutual funds: Evidence from Pakistan. Frontiers in Psychology, 12, 666007.
Samadi, F., Abouzar, A., & Arefeh. (2024). Examining the mediating role of risk perception in the impact of financial-behavioral factors on investment decisions. Behavioral and Financial Research in Accounting, 2(4), 41-61. (In Persian)
Shanai, S. N. E., & Zabihai, S. (2023). Designing a risk tolerance capacity model for individual investors based on a grounded theory approach. Development and Investment, 8(2), 247-269. (In Persian)
Thanki, Heena, Sweety Shah, Vrajlal Sapovadia, Ankit D. Oza, and Dumitru Doru Burduhos-Nergis. 2022. "Role of Gender in Predicting Determinant of Financial Risk Tolerance" Sustainability 14, no. 17: 10575.
Xu, H. Zhan, H. Fannin, L. (2017). The impact of market economy on individuals' financial behaviors. International Journal of Research in Business. 22(19). 1933 - 6021.
