Financial Literacy, Emotional Intelligence and Cognitive Biases Shaping Investor Behavior: Mediating Role of Risk Perception and Moderating Effect of Personality Traits

Abstract

The stock market behaves according to investors' rational decisions and is reflected by the available market information. Contrary, prospect theory (1979) stated that the irrational behavior of an investor effect the investment decision. Investors are concerned about maximizing their profit at minimum cost. This study primarily focuses to check investors' behavior in the short and long-term investment intentions. This study is unique because it investigated how financial literacy, emotional intelligence, and cognitive biases (Overconfidence, disposition effect, and heuristic bias) affect investment intentions via the intervening effect of risk perception and the moderating role of personality traits. This study also examines the direct and indirect effects (via investors’ risk perception) of cognitive biases on the investor's intentions. 528 questionnaires are correctly entered and the results are generalized to the whole population related to the investors of the Pakistan Stock Exchange. For getting the responses from the target population, convenience base sampling is used. AMOS is applied as statistical software for validity and inferential concerns. Confirmatory factor analysis and exploratory factor analysis are used for the confirmation and extraction of items. Moreover, Validity is applied through Discriminant and Convergent validity. Process Macro, proposed by Hayes (2017) applied to check the mediation and moderation results. Questionnaires are distributed to investors registered on Pakistan Stock Exchange. The results show that neurotic investor behavior moderates the overconfidence, heuristic and investment intention during the short term period. But other personality traits having no moderation under the short-term period. Results also add in the literature that the relationship between the disposition effect and investment intention does not impact under long-term investment. The finding of this study recommended that other behavioral biases can also impact decision-making so those biases should be used as independent variables. It is also recommended that the study must be done on the commodity market and comparison should occur between the behavior of stock exchange and commodity market investors.