A study on investors’ behavioral patterns: examining influential factors with a focus on the mediating role of risk tolerance

Anita Kumari, Sonali Kadam, Kailash Nath Tripathi and Jay Prakash Verma

Abstract

This study examines the complex relationships between stock market investment behavior, risk tolerance and investor personality traits. An analysis of the direct and indirect effects of personality traits such as agreeableness, conscientiousness, extroversion, neuroticism and openness on investment behavior and risk tolerance using structural equation modeling and a sample of 467 investors reveals that agreeableness significantly influences investment behavior but has no effect on risk tolerance. This study also finds that conscientiousness has a positive impact on both investment behavior and risk tolerance. Extroversion negatively affects investment behavior but positively influences risk tolerance, neuroticism positively influences both investment behavior and risk tolerance, and openness positively impacts investment behavior with no effect on risk tolerance. Mediation analysis demonstrates the pivotal role of risk tolerance in explaining the relationship between personality traits and investment behavior. Agreeableness and openness do not mediate investment behavior via risk tolerance, while conscientiousness and neuroticism partially mediate investment behavior and extroversion fully mediates it. This research contributes essential insights for financial advisors and policy makers in navigating the intricate landscape of investor behavior and in informing tailored strategies in the realm of behavioral finance.