Personality-Driven Risk Appetite and Investment Choices: An Empirical Study of Indian Stock Market Investors"

Abstract

The effect of psychological factors on investment decision attribution in the financial market attracts more attention, mentality deviation has been commonly perceived as a part of decision strategy in the paradigm of “rational” economy model. The study investigates the propensity of investment decisions based on Big Five personality traits (Neuroticism, Extraversion, Openness, Agreeableness, and Conscientiousness) among Indian stock market investors in the sphere of risk appetite and attitudes. A cross-sectional research design was adopted and data were gathered from 523 individual investors at top Indian cities using structured questionnaires. The procedures used SEM and multiple regression analysis for hypothesis testing. The above results show that there is a negative relationship between neuroticism and equity investment (β=-0.335, P<0.05) and a positive relationship between extraversion and long-term investment (β=0.186, P<0.05). Conscientiousness has not a significantly negative impact on short-term trading behavior (β = -0.335, p < 0.001). Openness to experience is also positively related to short-term investment intention and long-term investment intention (β=0.357, p<0.05, β=0.007, p<0.05). Results indicate personality traits account for 23.4% influencing investment behavior pattern. These findings offer important implications for financial advisors in tailoring investment strategies as well as for the policy makers who attempt to understand the behaviour of the investors in the emerging markets. This paper adds to the behavioral finance literature in terms of providing empirical proof of personality-based investment behavior in an Indian context.