Title: What explains the investment decision-making behaviour? The role of financial literacy and financial risk tolerance

Authors: Zaheer Ahmed; Umara Noreen; Suresh A.L. Ramakrishnan; Dewi Fariha Binti Abdullah

Addresses: Business Administration Department, Iqra University, Karachi, Pakistan ' College of Business Administration, Prince Sultan University, Riyadh, Kingdom of Saudi Arabia ' Azman Hashim International Business School, University Technology Malaysia (UTM), Johor Bharu, Malaysia ' Azman Hashim International Business School, University Technology Malaysia (UTM), Johor Bharu, Malaysia

Abstract: Investment decision-making behaviour has a significant role in the financial growth of individual investors. This study investigates the impact of financial literacy on investment decision-making behaviour by taking mediating role of financial risk tolerance. The study employed quantitative research design and multi-stage random and convenience sampling. A survey questionnaire was used to collect data from 384 registered individual investors of Pakistan Stock Exchange (PSX). Structural equation modelling (SEM) was used to test the relationships between the constructs. Results showed positive and significant impact of financial literacy on investment decision-making behaviour and financial risk tolerance among individual equity investors. Similarly, financial risk tolerance mediated the relationship between financial literacy and investment decision-making behaviour. The study suggests measures to policy makers for improving financial literacy among individual investors. It also proposes significant functional insights for stockbrokers, investment advisors, and financial managers through examining the investment decision-making behaviour of individual equity investors. This study serves as a guideline for academia to further develop/improve the financial literacy of future investors.

Keywords: behavioural finance; financial literacy; financial risk tolerance; FRT; investment decision-making.

DOI: 10.1504/AAJFA.2021.111814

Afro-Asian Journal of Finance and Accounting, 2021 Vol.11 No.1, pp.1 - 19

Received: 06 Jun 2019
Accepted: 13 Jan 2020
Published online: 15 Dec 2020 *

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