Personality traits and investor risk behavior: moderating role of financial literacy

Abstract

Purpose

The study aims to examine the relationship between personality traits and investor risk behavior of the individuals trading in stock markets. Furthermore, this study establishes the association of financial literacy on the relationship between personality traits and investor risk behavior.

Design/methodology/approach

The authors analyze cross-sectional survey method data by using moderated multiple regression analysis, a standard method of determining the moderation effect. PROCESS Model method has been used in this study to check the robustness of the results.

Findings

The findings reveal that personality traits significantly influence investor risk behavior and financial literacy modifies the fundamental relationships between personality traits and investor risk behavior. The findings also conclude that behavioral impact was predetermined by individuals' genetic traits and is influenced by financial literacy.

Research limitations/implications

The current study provides valuable insights for investors and adamant grounds for future research. The two-fold role of individuals' personalities in case of gains and losses can be of interest to the researchers in future.

Practical implications

Investors currently facing the complex financial choices which are far beyond the day-to-day financial advice. This study guides rational investment behavior for portfolio managers and investors for advanced investment options.

Social implications

Most of the prior literature is based on developed markets, whereas the current study focuses on less literate society (i.e. Pakistan) to protect the investors from scams and fraud. The current study supports the vital role of investors in the socio-economic development of emerging markets.

Originality/value

The authors believe this study expands the boundaries of personality theories, especially in the context of risk behavior and financial literacy. The study also contributes to advancing the personality theory trimmed with financial literacy and investor behavior while making important theoretical inroads for future research.

Citation

Akhtar, M. and Malik, M.U. (2023), "Personality traits and investor risk behavior: moderating role of financial literacy", Managerial Finance, Vol. 49 No. 5, pp. 884-905. https://doi.org/10.1108/MF-08-2021-0387