Investor Risk Behaviour in a Developing Country Setting

Abstract

The study of individual risk behaviour remains an area of interest in many domains; especially in investments, where every decision bears a certain proportion of risk. Most studies on risk behaviour are based on Western contexts and studies centered around developing countries remains relatively unexploited. Therefore, the objective of this study is to assess the determinants of risk behaviour of investors in a developing country setting, where investor risk appetite is a less prominent factor and the investment markets are less informationally efficient. A modified version of the Sitkin Pablo model (1992) was integrated with the theory of perceived self-efficacy by Bandura (2010) in order to build a conceptualized model of risk behaviour. The developed model depicts two direct determinants of risk behaviour namely, risk perception and risk propensity. It further discusses about six other indirect determinants which influence the investment decisions. The model was assessed through a cross-sectional study carried out through a scenario-based questionnaire distributed among investors from six different industries. The study revealed that the risk perception of an average individual investor in a developing country setting is comparably low, making their investment decisions more prudent and cautious. The model presented in this study can be used as a tool in determining the risk appetite of investors and assist in the allocation of investment products. It could also be used in diverse applications across different domains such as human resources, insurance industry and marketing to classify risk behavior of employees and customers as well.

Keywords: Investors, Risk Behaviour, Risk Perception, Self-Efficacy Theory

DOI: 10.7176/EJBM/12-32-02

Publication date: November 30^th 2020