THE INVESTMENT PUZZLE: UNVEILING BEHAVIORAL FINANCE, RISK PERCEPTION, AND FINANCIAL LITERACY

Authors

  • Bashar Yaser Almansour
  • Ammar Yaser Almansour
  • Sabri Elkrghli
  • Seyed Amirhossein Shojaei

DOI:

https://doi.org/10.2478/eoik-2025-0003

Keywords:

behavior finance, risk perception, financial literacy, invest- ment decisions

Abstract

Contemporary financial theory upholds the market efficiency hypoth-
esis, asserting that stock prices inherently embody all available infor-
mation. In contrast, behavioral finance theory challenges this premise
by proposing that psychological and emotional factors can wield in-
fluence over stock prices. This study delves into the repercussions of
behavioral finance factors on investment decisions within the Saudi
equity markets, utilizing risk perception and financial literacy as me-
diating variables. An online questionnaire was disseminated to 350
individual investors, yielding 315 completed responses deemed suit-
able for analysis. Employing Structural Equation Modeling (SEM),
the collected data underwent rigorous scrutiny. The findings reveal
that herding, the disposition effect, blue-chip bias, and overconfidence
significantly and positively impact both risk perception and financial
literacy. Furthermore, all four behavioral finance factors exhibit a
substantial positive indirect effect on investment decision-making
through the intermediaries of risk perception and financial literacy.
It is imperative to acknowledge the study’s specific focus on these
factors while recognizing the potential influence of other elements on
risk perception, financial literacy, and investment decision-making.
The research underscores the critical importance of incorporating an
individual’s perception of risk into investment decisions, as it mark-
edly shapes their proclivity for risk-taking and, consequently, the
performance of their investment portfolio. The findings highlight the
necessity for investors to recognize and address their behavioral bias-
es. Additionally, the study advocates for advisors and policymakers
to formulate strategies aimed at mitigating the impact of these bias-
es. The comprehensive exploration of behavioral finance factors and
their implications for investment decisions yields valuable insights for
individual investors and stakeholders in financial advisory and poli-
cymaking roles.

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Published

2024-12-04

How to Cite

Yaser Almansour, B. ., Yaser Almansour, A., Elkrghli, S. ., & Amirhossein Shojaei, S. . (2024). THE INVESTMENT PUZZLE: UNVEILING BEHAVIORAL FINANCE, RISK PERCEPTION, AND FINANCIAL LITERACY. ECONOMICS - INNOVATIVE AND ECONOMICS RESEARCH JOURNAL, 13(1). https://doi.org/10.2478/eoik-2025-0003