The Relationship between Risk Propensity, Risk Perception and Risk-Taking Behaviour in an Emerging Market

• Main Authors: Hamid, Fazelina Sahul, Rangel, Gary John, M. Taib, Fauziah, Thurasamy, Ramayah
• Format: Article
• Language: English
• Published: Universiti Utara Malaysia 2013
• Subjects: HG Finance
• Online Access: http://repo.uum.edu.my/24991/1/IJBF%2010%201%202013%20134%20146.pdf; http://repo.uum.edu.my/24991/; http://ijbf.uum.edu.my/index.php/previous-issues/149-the-international-journal-of-banking-and-finance-ijbf-vol-10-no-1-march-2013

This paper reports evidence to support a relationship between risk propensity, risk perception, and risk-taking behaviour of investors in an emerging market. Primary data were gathered using a validated structured questionnaire, which was self-administered by respondents: there were 162 investors from 8 stockbroking companies. A multiple regression was used to test the direct and indirect effects of the identified behavioural characteristics on investment decision. Risk propensity was found to be positively related to risk-taking behaviour whereas risk perception was negatively related to risk-taking behaviour.It was further found that risk perception partially mediates the effect of propensity to take risk. This suggests that the perceptual framing of a situational context in the investors’ thought processes reduces but it does not totally overwhelm the innate personality traits with respect to either the investor’s risk-seeking or risk-averseness. The tendency to engage in risky behaviour is more psychological in nature. The implications of the research are further explored.