Quantifying Risk in Investment Decision-Making

Abstract

In the wake of inflation, investors engage in identifying inflation hedging instruments. Most importantly, investors attempt to minimize risk and maximize returns to safeguard against inflation. Risk plays an important role in this process. The objective of this research is to examine the relationship between risk factors and investor behavior, particularly in the Indian context. Based on the theory of planned behavior (TPB), we built a conceptual model investigating the intricate relationship between risk factors, investment priority, investment strategy and investment decision-making. We collected data from 537 respondents in the southern region of India and analyzed the data using Partial Least Squares Structural Equation Modeling (PLS-SEM). The result indicate: (i) risk factors (risk capacity, risk tolerance, and risk propensity) are positively related to investment priority and investment strategy, (ii) investment priority is positively related to investment decision-making, (iii) conscientiousness moderates the relationship between investment priority and investment decision-making, (iv) investment strategy is positively related to investment decision-making. Finally, the practical and theoretical implications for research are discussed.