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MF
49,5 Personality traits and investor
risk behavior: moderating role
of financial literacy
884 Muhammad Akhtar and Muhammad Umair Malik
FAST School of Management,
Received 24 August 2021
Revised 13 December 2021
National University of Computer and Emerging Sciences, Islamabad, Pakistan
16 April 2022
6 October 2022
Accepted 31 October 2022 Abstract
Purpose – The study aims to examine the relationship between personality traits and investor risk behavior of
the individuals trading in stock markets. Furthermore, this study establishes the association of financial
literacy on the relationship between personality traits and investor risk behavior.
Design/methodology/approach – The authors analyze cross-sectional survey method data by using
moderated multiple regression analysis, a standard method of determining the moderation effect. PROCESS
Model method has been used in this study to check the robustness of the results.
Findings – The findings reveal that personality traits significantly influence investor risk behavior and
financial literacy modifies the fundamental relationships between personality traits and investor risk behavior.
The findings also conclude that behavioral impact was predetermined by individuals’ genetic traits and is
influenced by financial literacy.
Research limitations/implications – The current study provides valuable insights for investors and
adamant grounds for future research. The two-fold role of individuals’ personalities in case of gains and losses
can be of interest to the researchers in future.
Practical implications – Investors currently facing the complex financial choices which are far beyond the
day-to-day financial advice. This study guides rational investment behavior for portfolio managers and
investors for advanced investment options.
Social implications – Most of the prior literature is based on developed markets, whereas the current study
focuses on less literate society (i.e. Pakistan) to protect the investors from scams and fraud. The current study
supports the vital role of investors in the socio-economic development of emerging markets.
Originality/value – The authors believe this study expands the boundaries of personality theories, especially
in the context of risk behavior and financial literacy. The study also contributes to advancing the personality
theory trimmed with financial literacy and investor behavior while making important theoretical inroads for
future research.
Keywords Personality, Investor risk behavior, Financial literacy, Prospect theory
Paper type Research paper

1. Introduction
Psychological factors and inherent emotions affect the investor decision-making process
(Nofsinger, 2018). The decision of an investor passes through different filters of emotions and
psychology. The Big Five personality traits exert a causal impact on attitude and behavior.
Sometimes investors make poor financial decisions even though they are knowledgeable and
well-trained professionals due to emotions, cognitive errors and psychological biases. The
introduction of the Big Five personality framework in the 1980s and 1990s received scholarly
attention which centered on the individual differences in traits, general behavior and
attitudes. Personality is one of the major disciplines in psychology and is a crucial factor in
human behavior (Dollinger and Orf, 1991). For several decades’ researchers have been trying
to analyze investor behavior and establish a strong relationship between investment and
Managerial Finance personality which has a substantial impact on investors’ decisions (see, for example, Mayfield
Vol. 49 No. 5, 2023
pp. 884-905
et al., 2008; Grable, 2000). Although, market incentives, public policy and investor education
© Emerald Publishing Limited
0307-4358
also influence investors’ decision-making (Bucciol and Zarri, 2017). Still, investor perceives
DOI 10.1108/MF-08-2021-0387 information according to their personality (see, for example, Costa and McCrae, 1992, 1980;
Pompian and Longo, 2004; Niszczota, 2014; McCrae and John, 1992; Durand et al., 2008; Oehler Financial
et al., 2018). literacy’s
“An investor always acts rationally” is a fundamental assumption of conventional finance
for developing finance theories (Ahmed and Maochun, 2019). However, assumptions of
moderating
rationality are violated in daily life as people always act irrationally. Investor shows risk- role
averse behavior at the time of buying an insurance scheme and become risk-taker when
buying a lottery ticket. Prospect theory best describes this phenomenon of decision under the
condition of risk and uncertainty. Individuals try to avoid risk in case of gain but accept 885
the risk to avoid losses (Kahneman and Tversky, 1979), so the psychology of investors is now
the most influential factor in the decision-making process. Over the past decade, the impact of
psychology and emotions on financial decisions became more popular. Attitude, behavior
and emotion change according to the context and situation. Investors make decisions based
on available information which can be inaccurate or inadequate. Still, the available
information impacts the understanding and analyzing the investor’s ability. Every investor
processes information according to their skills and personality. Hence, the psychological
factors influence the behavior of investors.
Investor risk behavior is one of the constructs related to investment behavior (Wood and
Zaichkowsky, 2004), and every investor trades differently from the others. Financial literacy
helps investors minimize the entry barriers to financial markets (Hsiao and Tsai, 2018).
Individuals with a higher level of financial literacy can actively participate in financial
markets. It positively impacts investment decisions like saving accounts, mutual funds,
insurance policies and shares (Gupta and Gupta, 2018). It encourages investor participation in
the market and discourages informal ways of borrowing (Klapper et al., 2013). It also plays a
pivotal role between personality traits and stock market participation (Akhtar et al., 2018).
A significant association of higher financial literacy with the individual intention for short-
term and long-term investment has been found in businesses (Sadiq and Khan, 2018).
Unfortunately, with few exceptions, prior literature has ignored the potential impact of the
Big Five on investor risk behavior in the emerging and less literate society like Pakistan. To
fill the literature gap, we also investigated whether financial literacy helps to mitigate the
effects of personality on investor risk behavior, especially when investors are facing complex
financial choices for the socio-economic development in the emerging markets with remote
financial advice.
Therefore, the current study contributes to the body of knowledge in many ways. First, it
responds to the call by the portfolio managers to bring critical solutions based on evidence to
cope with investors’ profiles based on personality traits. Accordingly, we expand prior
literature by integrating conceptual model related to personality, investor behavior and
financial literacy, which are of precise significance for investors. Second, in practical terms,
findings of our study offer actionable insights to investors, professionals and regularity
bodies. Based on findings, investment companies can introduce more advanced investment
options for investors based on their personality traits to enhance stable investment culture in
emerging markets.
Third, drawing upon Kahneman and Tversky’s (1979) prospect theory, the study
scrutinizes the individual’s decisions under the condition of risk and uncertainty and may be
in particular useful to the investors in terms of tailoring strategies that foster expected
returns while facing the influence of personality on investment decisions. Further, our
findings are specifically related to the investors’ context that may be more widely applicable
to other settings to improve stock market participation and thereby the current study
enhances the importance of personality for coping the risk associated with investments that
could improve their financial wellbeing. Fourth, it examines the relationship of financial
literacy between personality and risk behavior, providing a unique context for examining
such effects.
MF Finally, most of the prior literature is based on developed markets, whereas the current
49,5 study is conducted in a less financially literate society (i.e. Pakistan). To protect the investors
from scams and fraud, this study provides a unique context a financial literacy provides in
the socio-economic development of investors. The current study provides a relevant context
of financial literacy to examine its shielding role between personality traits and investor risk
behavior. The results of the study offer insight to the investors by providing deeper
understanding of the roles that personality and financial literacy plays in investor risk
886 behavior. The study is followed by a literature review, methodology, empirical findings and
conclusion.

2. Literature review
Personality refers to how someone interacts, reacts and behaves with others (Crysel et al.,
2013). Understanding one’s personality helps explain and predict an individual’s decision.
Prior research suggests that personality traits affect individual investment decisions (Crysel
et al., 2013). It also influences risk-taking behavior in different domains of life including
gambling, social life and investment decisions (Back and Seaker, 2004). Investment intentions
and risk aversion among the investors are influenced by personality traits (Sarwar et al.,
2020). Even individual’s long-term trading decisions are also influenced by personality
(see, for example, Rizvi and Fatima, 2015; Bucciol and Zarri, 2017; Chen et al., 2019). The Big
Five personality traits are the most used in research among most personality models. The Big
Five personality models are sufficient to describe personality characteristics that are
genetically present in a human.

2.1 Extroversion and investor behavior’

“Extroversion concerns the extent to which individuals are gregarious, assertive, and sociable
versus reserved, timid, and quiet” (Salgado, 1997, p. 30). They are innovative and seek more
information and avail opportunities. They have more information from their vast social
network and are more confident about their decisions (Pompian and Longo, 2004). People
with a high degree of extroversion prefer innovation and taking risks in purchasing new
assets. Extroversion influences investor risk behavior and makes them less risk-averse
(Oehler and Wedlich, 2018) and leads to higher risk tolerance and risk-taking behavior
(see, for example, Harlow and Brown, 1990; Pan and Statman, 2012). The higher the degree of
extroversion, the higher the risky asset they hold (Oehler et al., 2018). Therefore, risk attitude
is positively correlated with a higher degree of extroversion (Becker et al., 2012). High
extroversion supplies a motivational force for more risk-taking (Nicholson et al., 2005).
Extroversion shows high-risk tolerance behavior (Pak and Mahmood, 2015) and a high
attitude of investors toward a financial risk (Nandan and Saurabh, 2016). They show a
positive risk attitude toward bonds and mutual funds investment (Pinjisakikool, 2018).
A positive attitude about life and events increases the overestimation of the market and
underestimates the possible risk (Lo et al., 2005). A higher level of extroversion primes
individuals with more independence and self-control for investment opportunities (Gambetti
and Giusberti, 2019). Consequently, we hypothesize that:
H1. The greater the level of extroversion, the greater the chances of investment in risky
assets.

2.2 Neuroticism and investor behavior

“Neuroticism concern the degree to which the individual is insecure, anxious, depressed,
emotional versus calm, self-confident and cool” (Salgado, 1997, p. 30). Neuroticism attributes
people who have experienced more negative events in life than others (Magnus et al., 1993).
Neuroticism behavior tends an individual toward negative feelings and is inconsistent with a Financial
pessimist nature (Durand et al., 2008). They feel depressed (Costa and McCrae, 1992) and literacy’s
mainly concentrate on the negative information (Noguchi et al., 2006). They usually feel fear
from uncertainties, focus more on negative aspects and are less satisfied with their lives
moderating
(Costa and McCrae, 1980). They do not perform well in long-run investment decisions role
(Chen et al., 2019). The overall reason for neurotic behavior is avoiding risks (Niszczota, 2014).
They consider threats and losses of any investment more than the opportunities so they
invest less in risky assets. They feel anxiety while making investment decisions (Young et al., 887
2012). Due to conservative behavior, they even lose good investment opportunities (Oehler
and Wedlich, 2018). The higher neuroticism depicts less risk tolerance (Harlow and Brown,
1990) and a negative association was found between neuroticism and risk tolerance (Pan and
Statman, 2013). The more the degree of neuroticism, the less risky asset they hold in their
portfolio (Oehler et al., 2018). Risk attitude for investments is negatively correlated with
neuroticism (Becker et al., 2012). Even neuroticism supplies less motivational force for high
risk-taking (Nicholson et al., 2005). Neuroticism trait reflects low-risk tolerance behavior
(Pak and Mahmood, 2015) and avoids risky investments (Gambetti and Giusberti, 2019).
Consequently, we hypothesize that:
H2. The greater the level of neuroticism, the less the chances to invest in risky assets.

2.3 Openness to experience and investor behavior

“Individuals who are creative, curious and cultured versus practical with narrow interests”
(Salgado, 1997, p. 30). They are open-minded, cultured and imaginative (Durand et al., 2008).
Naturally, they are interested in investing. This attitude leads them to new experiences and
new viewpoints (Costa and McCrae, 1992). They truly perceive new information apply them
and are freethinkers (Tauni et al., 2015). Their analytical approach stops them and urges them
to think about any particular asset regarding gain and loss. Nevertheless, they are innovative,
adaptive, curious and like new experiments. Due to their hunt for new things, they invest in
risky assets and are not afraid to explore new investment opportunities. Risk tolerance
usually is high in openness to experience (Pan and Statman, 2013) and they like to take more
risks (Durand et al., 2008). Individuals typically have a positive attitude toward risk tolerance
(Pak and Mahmood, 2015) and prefer to take the risks (Mayfield et al., 2008). An investor
having a high openness has a greater probability of taking a risk (De Bortoli et al., 2019).
Consequently, we hypothesize that:
H3. Openness to experience motivates individuals to invest in risky assets.

2.4 Agreeableness and investor behavior

“Agreeableness concerns the degree to which individuals are cooperative, warm, and agreeable
versus cold, disagreeable, and antagonistic” (Salgado, 1997, p. 30). Agreeableness tends toward
respect, values, sympathy and humanitarianism (Durand et al., 2008). A high degree of
agreeableness represents politeness (Tauni et al., 2015). Agreeableness is associated with
acceptance and friendship (Gleason et al., 2004). They maintain positive interpersonal
relationships (Gleason et al., 2004). Similarly, they maintain good, transparent, honest and
trustworthy relationships among their social network and believe in others more than
themselves. They prefer their social network more than their other daily routine matters.
High agreeableness can seem unpredictable or lack focus regarding investments –
unpredictable in a way that high agreeableness focus on positive relationships and they
often agree with such things which are against their benefit. They like to go by others’ decisions
while investing in the stock markets to maintain good relations. This behavior engages them in
risky investments due to the misguidance of others (Costa and McCrae, 1992). Rarely do they
MF show interest in new investments and may accept risky investments. Agreeableness is
49,5 significantly associated with short-term investments (Nandan and Saurabh, 2016). They follow
market trends during the investment and may trade excessively. Usually, they are waiting for
someone’s guidance to invest in risky assets. Higher agreeableness individuals are found to be
less confident (Pan and Statman, 2013) and negatively associated with risk tolerance behavior
(Pak and Mahmood, 2015). Consequently, we hypothesize that:
888 H4. The individual high in agreeableness has a probability of investing less in a
risky asset.

2.5 Conscientiousness and investor behavior

“Conscientiousness measures the extent to which individuals are hardworking, organized,
dependable, and persevering versus lazy, disorganized, and unreliable” (Salgado, 1997, p. 30).
They are responsible, trustworthy, purposeful, focused and goal oriented (Durand et al.,
2008). That is why they perform well in the long-run investment decisions (Chen et al., 2019).
They keep trying to accomplish their goals (Costa and McCrae, 1992). Self-control and high-
quality information help them to carry out their tasks. Conscientiousness is considered a
valid forecaster for performance among the other behavioral dimensions (Barrick and Mount,
1991). It is positively associated with all learning styles (Komarraju et al., 2011). Due to self-
control, intelligence and goal orientation, they are less affected by investment losses. They are
reliable and always possess relevant information regarding investments. They set a limited
number of goals and try hard to achieve them. They do not invest impulsively and try to add a
small number of risky assets to their portfolio. Personality traits exhibit high and low risk
tolerance during investment decisions (Ahmad and Maochun, 2019). However,
conscientiousness has a low association with risk tolerance (Pan and Statman, 2013) and
makes cognitive decisions with conformity (Nicholson et al., 2005). Conscientiousness is
negatively associated with risk tolerance (Pak and Mahmood, 2015) and does not explain the
risk attitude of investors (Nandan and Saurabh, 2016). Consequently, we hypothesize that:
H5. The higher conscientiousness restricts individuals to invest in risky assets.

2.6 Financial literacy and investor risk behavior

Financial literacy deals with managing money regarding investing, insuring, saving and
budgeting (Hogarth, 2002). Financial literacy is determined by individual expertise,
experiences and needs (Jonubi and Abad, 2013). Moreover, financial literacy is positively
associated with individual personal involvement in the financial markets. The awareness and
knowledge of basic financial concepts help investors in financial decision-making (Hogarth,
2002). While investor risk behavior is one of the constructs related to investment behavior
(Wood and Zaichkowsky, 2004), everyone trades differently from the others. Financial
literacy encourages investor participation in the stock market and discourages informal ways
of borrowing (Klapper et al., 2013). It also plays a pivotal role between personality traits and
stock market participation (Akhtar et al., 2018). Over time research explains and demands the
upcoming directions related to emotions, personality and financial literacy. Financial literacy
helps investors to minimize the entry barriers for financial products (Hsiao and Tsai, 2018).
Individuals with a higher level of financial literacy can actively participate in financial
markets. It is positively associated with stock market participation and is negatively
associated with an informal way of borrowing (Klapper et al., 2013).
In contrast, extrovert investors are more likely to manage finances, which leads them
toward investments. Extroversion and financial literacy are related to each other, because
investor with extrovert behavior will be more likely to take risk. It implies that financial
literacy orientation prompts extroverts to make rational financial decisions. It helps investors
select the maximum beneficial products and leads investors toward higher wealth (Bannier Financial
and Schwarz, 2018). Financially literate investors are more likely to invest brighter than a literacy’s
lower level of financially literate investors (Bellofatto et al., 2018). Neurotic individuals reflect
low-risk tolerance behavior (Pak and Mahmood, 2015) and avoid risky investments (Gambetti
moderating
and Giusberti, 2019). They feel anxious while making investment decisions (Young et al., role
2012). However, financial literacy provides sufficient financial knowledge and may induce
neuroticism towards risky investments. Investor having openness to experience personality
traits perceives new information with analytical abilities. They are innovative, adaptive, 889
curious and like new experiments. Due to their hunt for new things, financial literacy helps
them to invest in risky assets as they are not afraid to explore new investment opportunities.
Agreeableness prefers their social network; they like to go by others’ in investing
decisions. They wait for someone guidance; therefore, their financial knowledge or financially
literate friend may them to invest in risky assets. Conscientiousness investors are focused,
trustworthy and purposeful. They keep trying to accomplish their goals (Costa and McCrae,
1992). Self-control and high-quality information help them to carry out their tasks. Financial
literacy helps to improve their self-control and intelligence for investment decisions.
However, conscientiousness has a low association with risk tolerance (Pan and Statman,
2013) and makes cognitive decisions with conformity (Nicholson et al., 2005).
Conscientiousness is negatively associated with risk tolerance (Pak and Mahmood, 2015)
and does not explain the risk attitude of investors (Nandan and Saurabh, 2016). They set a
limited number of goals and try hard to achieve them. They do not invest impulsively and try
to add a small number of risky assets to their portfolio. Personality traits exhibit high and low
risk tolerance during investment decisions (Ahmad and Maochun, 2019). Financially literate
investor prefers diversification and holds a small set of different stocks. It is positively
associated with individuals who possess diversified and complex portfolios (Koh et al., 2020).
In the same vein, a financially literate investor usually prefers a small set of different stocks to
diversify and minimize their risk. Moreover, they experience fewer income shocks (Klapper
et al., 2013). They can pre-calculate the expected losses and feel less stressed than others.
Hence, it entails informed financial decisions (Mouna and Anis, 2017). Higher financial
literacy strengthens the financial depth of the investors (Grohmann et al., 2018) and helps in
financial investment decisions (Grohmann, 2018). Consequently, we propose that:
H6. Financial literacy moderated the relationship between personality traits and investor
risk behavior.

3. Research methodology
Drawing upon Kahneman and Tversky’s (1979) prospect theory, the study examines the
influence of Big Five personality traits on investor risk behavior and the relationship of financial
literacy between personality traits and risk behavior, which provides a unique context to
examine such effects. The study integrates the survey method to collect data through
questionnaires by applying snowball sampling techniques. Personal and professional links were
used to approach the investors through brokerage houses and stock exchanges. A total of 450
questionnaires were distributed, out of which 189 were received and 181 were useable.
Therefore, the response rate was 42%. The unit of analysis was the individual investors of the
Pakistan Stock Exchange (PSX) to explain the behavioral characteristics regarding investments.
Multiple regression analysis has examined the association between the Big Five personality
traits and investor risk behavior. Moderated multiple regression analysis, a standard method of
determining the moderation effect, has been operationalized to validate the results. To check the
robustness of the results, the Andrew F. Hayes process (2013) has also been used to validate the
results of moderated multiple regression analysis.
MF 3.1 Measure for Big Five personality traits
49,5 The 44 items scale of Big Five personality traits has opted (John et al., 1991). In line with the
studies (see for example, John and Srivastava, 1999), Big Five personality traits have been
measured by using five-points Likert scale ranging from 1 5 “strongly disagree” to
5 5 “strongly agree” with anchor 1 5 “strongly disagree”, 2 5 “disagree”, 3 5 “neutral”,
4 5 “agree” and 5 5 “strongly agree”. The high score reflects high and the low score reflects
low in specific personality traits.
890
3.2 Measure for financial literacy
Financial literacy has been measured using three items scale developed by Lusardi the
professor of George Washinton University and head of the Financial Literacy Excellence
Center (FLEC) USA. In line with the studies (see, for example, Van Rooij et al., 2011; Lusardi
and Mitchell, 2009; Akhtar et al., 2018; Akhtar and Muhammad, 2017).

3.3 Measure for investor risk behavior

To measure the investor risk behavior, the scale has been opted of Wood and Zaichkowsky
(2004). The scale has been based on five points Likert scale ranging from 1 5 “strongly
disagree” to 5 5 “strongly agree.” A high score reflects high and a low score reflects low
investor risk behavior.

4. Empirical analysis
Reliability refers to the extent to which the data are free from errors and produces a consistent
result (see Tables 1–3). The acceptable range of Cronbach’s Alpha is between 0.6 and 0.8. The
results presented in Table 4 are within the acceptable range (see Table 5).
The non-response bias analysis was conducted using paired sample t-test. Table 4
shows the early and late 40 responses of each variable. In which the significant values of all
variables are greater than 0.05 (p > 0.05). This means that there is no significant difference
exists between the early and the late responses of each variable. The results show that the
behavior of the investor who responded has not significantly different from the investor
who did not respond. Therefore, the obtained results may be generalized to the whole
population.
The histogram shows the skewness of the data. In Figure 1, the residuals that fall under
the curved line show the normality of the data.
Figure 2 shows residuals are normally distributed and follow the straight line. The P-P
plot compares the observed cumulative distribution function of the standardized residuals.

N Range Minimum Maximum Mean Std. Deviation

Extroversion 181 2.88 1.88 4.75 3.2272 0.55551

Neuroticism 181 2.88 1.38 4.25 2.8881 0.60028
Openness 181 2.50 2.00 4.50 3.2022 0.51725
Agreeableness 181 2.67 2.00 4.67 3.3591 0.59087
Conscientiousness 181 2.89 1.89 4.78 3.2020 0.58730
Inves_Risk_Behv 181 4.00 1.00 5.00 3.2265 0.82903
Financial Literacy 181 1.00 0.00 1.00 0.5209 0.26530
Note(s): Whereas Inves_Risk_Behv 5 Investor risk behavior, Personality is a multidimensional construct
Table 1. and has been measured by five subs constructs, i.e. extroversion, neuroticism, openness to experience,
Descriptive statistics agreeableness and conscientiousness
Figure 3 shows the scatter plot of residuals to check the homoscedasticity. The residuals are Financial
normally distributed at each level of Y and residuals are also constant across the levels of Y. literacy’s
It has been observed that the variance inflation factor (VIF) of all the variables has a value
less than 3 (VIF <3). The value of VIF less than 3 is considered acceptable; hence,
moderating
multicollinearity is not an issue. Table 6 shows the VIF of all the variables. role

4.1 Results of correlation analysis 891

To examine the relationship between variables, the Pearson correlation has been calculated.
A positive significant correlation was found between extroversion and investor risk behavior

Gender Frequency Percentage

Male 142 78.5 Table 2.

Female 39 21.5 Sample classification
Total 181 100 with respect to gender

Age Frequency Percentage

Less than 20 6 3.3

21–30 65 35.9
31–40 67 37.0
41–50 27 14.9 Table 3.
50 Above 16 8.8 Sample classification
Total 181 100 with respect to age

Variables Reliabilities Cronbach’s alpha (α)

Extroversion 0.64
Agreeableness 0.71
Neuroticism 0.64 Table 4.
Openness 0.65 Reliability analysis of
Conscientiousness 0.71 the variables

Variables Mean N Std. Deviation t-statistics Sig (2 tailed)

Investor Risk Behavior Early 3.3875 40 0.65523
1.878 0.068

Late 3.65 40 0.75277
Extroversion Early 3.3768 40 0.46895
0.832 0.41
Late 3.4522 40 0.44923
Neuroticism Early 3.0152 40 0.49433 1.141 0.261
Late 2.8467 40 0.69354
Agreeableness Early 3.5195 40 0.4887 0.589 0.559
Late 3.4438 40 0.62016
Openness to Experience Early 3.3575 40 0.46126
0.225 0.823
Late 3.3825 40 0.48405 Table 5.
Consciousness Early 3.2555 40 0.64562 1.03 0.309 Non-response bias
Late 3.103 40 0.58146 analysis
MF
49,5

892

Figure 1.
Showing data
diagnostic analysis

Figure 2.
Showing P-P plot of
regression
standardized residuals
 Financial
literacy’s
moderating
role

893

Figure 3.
Showing scatter plot

having value (r 5 0.423**). Neuroticism has a negative and significant correlation (r 5
0.228**),
indicating that risk behavior decrease as the level of neuroticism increase. A positive and
significant correlation has been found between openness to experience and investor risk behavior
having value (r 5 0.305**), representing that risk behavior increases as the level of openness to
experience upsurges. Value of correlation, i.e. (r 5 0.313**), signified the correlation between
agreeableness and investor risk behavior. A negative and significant correlation has been
observed between conscientiousness and investor risk behavior (r 5
0.133**).
The results of Table 7 represent the value of ANOVA. The F-stat value is (15.991) which is
greater than (4), and (0.000) shows high significance, so the model is reliable for testing the
hypotheses (see Table 8).
4.1.1 Statistical model to check the impact of personality on investor risk behavior.
IB ¼ βo þ β1 ðExtÞ þ β2 ðNeuÞ þ β3 ðOpnÞ þ β4 ðAgrÞ þ β5 ðConÞ þ ε

Whereas:
IB 5 Investor risk behavior, Ext 5 Extroversion, Neu 5 Neuroticism, Opn 5 Openness to
Experience, Agr 5 Agreeableness, Con 5 Conscientiousness and ε 5 Error term

Variables Tolerance VIF

Extroversion 0.839 1.191

Neuroticism 0.957 1.045
Openness to Experience 0.909 1.101 Table 6.
Agreeableness 0.782 1.278 Diagnostic analysis
Conscientiousness 0.906 1.104 through variance
Financial literacy 0.948 1.055 inflation factor
 MF
49,5

894

behavior
Table 7.

and investor risk

Correlation analysis
between personality
Extroversion Neuroticism Openness Agreeableness Conscientiousness Inves_risk_behv Financial literacy

Extroversion 1
Neuroticism
0.157* 1
Openness 0.229**
0.115 1
Agreeableness 0.332**
0.142 0.248** 1
Conscientiousness 0.429** 0.252** 0.297** 0.601** 1
Inves_Risk_Behv 0.423**
0.228** 0.305** 0.313**
0.133** 1
Financial literacy 0.188*
0.094 0.061 0.147* 0.249** 0.277** 1
Note(s): Whereas Inves_risk_bahv 5 Investor risk behavior, * 5 correlation was significant at the level of 0.05 (2-tailed) and ** 5 correlation was significant at the level
of 0.01 (2-tailed)
The R-squared value (R squared 5 0.314) showed that (31.4%) of the variation in investor risk Financial
behavior could be explained as an effect of the variation in a personality trait (see Tables 9 literacy’s
and 10).
Results depict that personalities traits positively and significantly affect investor
moderating
risk behavior, in contrast, neuroticism and conscientiousness have a negative and significant role
association with investor risk behavior.
895
4.2 Extroversion and investor risk behavior
The coefficient of extroversion is positive having a beta value of (β 5 0.306), t-value (4.525)
and the p-value (p 5 0.000), which means extroversion has a positive and significant impact
on investor risk behavior. Extroverts get information from their social networks and become
more confident in their investment decisions (Pompian and Longo, 2004). They also show a
positive risk attitude toward bonds and mutual funds (Pinjisakikool, 2018). They are
independent and self-controlled and are more likely to invest in risky assets (Gambetti and
Giusberti, 2019). The findings are consistent with the previous studies (see, for example,
Pinjisakikool, 2018; Tok, 2011; Lin and Lu, 2015; Oehler and Wedlich, 2018).

4.3 Neuroticism and investor risk behavior

The coefficient of neuroticism is negative having a value of (β 5
0.149), t-value (
2.326) and
p-value (p 5 0.021), which means it has a negative and significant impact on investor risk
behavior. Neurotic individuals are more risk-averse than others (Oehler and Wedlich, 2018).
They tend to halt higher-order intellectual functioning, make people feel anxious and scared

Model Sum of squares Df Mean square F Sig

1 Regression 38.797 5 7.759 15.991 0.000b

Residual 84.915 175 0.485
Total 123.713 180 Table 8.
Note(s): aDependent variable: Inves_Risk_Behv, bpredictors: (constant), conscientiousness, openness, ANOVA of multiple
neuroticism, extroversion and agreeableness regression analysis

Model R R square Adjusted R square Std. Error of the estimate Table 9.

Model summary of
1 0.560 0.314 0.294 0.69659 multiple regression
Note(s): aPredictors: (Constant), Conscientiousness, Openness, Neuroticism, Extroversion and Agreeableness analysis

Unstandardized
coefficients Standardized coefficients
Model B Std. Error Beta T Sig

(Constant) 1.512 0.598 2.527 0.012

Extroversion 0.457 0.101 0.306 4.525 0.000
Neuroticism
0.205 0.088
0.149
2.326 0.021
Openness 0.273 0.105 0.171 2.596 0.010
Agreeableness 0.302 0.099 0.215 3.047 0.003 Table 10.
Conscientiousness
0.330 0.093
0.234
3.567 0.000 Coefficients of multiple
Note(s): aDependent variable: inves_risk_behv regression analysis
MF of failure and predict worry and anxiety (Morris and Carden, 1981). Therefore, neurotic
49,5 individuals show a negative risk attitude toward bonds and mutual funds (Pinjisakikool,
2018). The findings are consistent with the studies of Wong and Carducci (2013), Young et al.
(2012), Harlow and Brown (1990) and McCrae and Costa (1996).

4.4 Openness to experience and investor risk behavior

896 The coefficient of openness to experience is positive, having a value of (β 5 0.171), t-value
(2.596) and the p-value (p 5 0.010), which means it has a positive and significant impact on
investor risk behavior. An investor with this trait is willing to take higher risk as they
accurately perceive information and creatively applies them in investment decisions (Tauni
et al., 2015). Openness supplies a motivational force for more risk-taking behavior (Nicholson
et al., 2005). The findings are in line with the studies (see, for example, Pak and Mahmood,
2015; Soane and Chmiel, 2005; Mayfield et al., 2008).

4.5 Agreeableness and investor risk behavior

The coefficient of agreeableness is positive, having a beta value (β 5 0.302), the t-value
(3.047),and the p-value (p 5 0.003), which means that agreeableness has a positive and
significant impact on investors’ risk behavior. Therefore, an individual who is high in
agreeableness will take a high risk. They invest more in risky assets. The results are
consistent with the studies of Nicholson et al. (2005), Bucciol and Zarri (2015), Pak and
Mahmood (2015) and Sreedevi and Chitra (2011).

4.6 Conscientiousness and investor risk behavior

The coefficient of conscientiousness is negative, having a beta value (β 5
0.234), t-value
(
0.356) and a p-value (p 5 0.000), which means that conscientiousness has a negative and
significant impact on investors’ risk behavior. Conscientiousness makes cognitive decisions
with conformity and they are risk-averse (Nicholson et al., 2005). Investors having high
conscientiousness will avoid investing in risky assets. The findings are consistent with the
previous study of Wong and Carducci (2013).
Statistical Model to Check the Impact of Personality on Investor Risk Behavior:
Moderating Role of Financial Literacy
IB ¼ βo þ β1 ðextroÞ þ β2 ðneuroÞ þ β3 ðopennÞ þ β4 ðagreeÞ þ β5 ðconsÞ þ β6 ðFnÞ
þ β7 ðextroÞðFnÞ þ β8 ðneuroÞðFnÞ þ β9 ðopennÞðFnÞ þ β10 ðagreeÞðFnÞ
þ β11 ðconsÞðFnÞ þ ε

Where
IB 5 investor risk behavior, extro 5 extroversion, neuro 5 neuroticism, open 5 openness
to experience, agree 5 agreeableness, cons 5 conscientiousness, Fn 5 financial literacy
and ε 5 error term
Table 11 presents the summaries of the results of the two models. One was without an
interaction term and the second model was with an interaction term. F value of model 1 shows
high significance (F 5 0.000). Model 2 with the interaction between personality traits and
investor risk behavior accounted for significantly more variance than just personality traits
and investor behavior themselves, R2 change (ʌR2 5 0.074, p 5 0.002), indicating the
potentially significant moderation between personality traits and investor risk behavior
(see Table 12).
5. Results and discussion Financial
Table 13 shows the results of moderated multiple regression analysis of five subs literacy’s
construct of personality traits. It also shows the results of interaction of all five sub-
constructs of a personality trait with financial literacy and investor risk behavior along
moderating
with beta coefficients, t-statistics, and p-values. The empirical results show that financial role
literacy significantly impacts investor risk behavior having a beta value (β 5 0.181) and
p-value (p 5 0.006). Interaction of (Finxneur) has a negative and significant association
with investor risk behavior having a beta value (β 5
1.411) and p-value (p 5 0.045). This 897
means financial literacy plays an essential role between neuroticism and risk-taking
behavior. While the interaction of (Finxcons) also has a negative and highly significant
relationship between conscientiousness and risk behavior having a beta value
(β 5
0.522) and p-value (p 5 0.000). This means financial literacy moderates the
relationship between conscientiousness and investor risk behavior. However financial
literacy does not moderate the relationship between extroversion, openness to experience,
agreeableness and investor risk behavior.

5.1 Robustness checks

5.1.1 Alternative measurement for moderation through Andrew Hayes Process. We conduct a
robustness check for moderation by recalculating moderation through Andrew F. Hayes
Process. The robustness test results show similar results of the moderation of financial
literacy between neuroticism and investor risk behavior.
Table 14 presents the moderation analysis of financial literacy results between
neuroticism and investor risk behavior through Andrew F. Hayes Process (2013). The
value of Lower Confidence Interval (LLCI) is (0.004) and Upper Confidence Interval (ULCI) is
(0.8512) by applying the first model of the Andrew F. Hayes Process. The interaction term of
financial literacy and neuroticism have LLCI (
2.163) and ULCI (
0.6672) and p-value
(p 5 0.0003). Hence, financial literacy moderates the relationship between neuroticism and

Model R R square Adjusted R square R square change Sig F. change

1 0.543 0.295 0.275 0.295 0.000

2 0.608 0.369 0.332 0.074 0.002 Table 11.
Note(s): aPredictors: (Constant), Fin_Literacy, Openness, Neuroticism, Agreeableness, Conscientiousness Model summary of
Extroversion, b Predictors: (Constant), Fin_Literacy, Openness, Neuroticism, Agreeableness, moderated multiple
Conscientiousness, Extroversion, FinXCons, finXneuro, FinXextro, finXopenn and FinXagree regression

Model Sum of squares Df Mean square F Sig

1 Regression 36.509 5 7.302 14.653 0.000

Residual 87.203 175 0.498
Total 123.713 180
2 Regression 45.673 10 4.567 9.949 0.000
Residual 78.040 170 0.459
Total 123.713 180
Note(s): aPredictors: (Constant), fin_literacy, openness, neuroticism, agreeableness, conscientiousness Table 12.
extroversion, bPredictors: (Constant), fin_literacy, openness, neuroticism, agreeableness, conscientiousness, ANOVA of moderated
extroversion, finxcons, finxneuro, finxextro, finxopenn and finxagree multiple regression
MF Unstandardized
49,5 coefficients Standardized coefficients
Model B Std. Error Beta T Sig

1 (Constant) 0.547 0.557 0.981 0.328

Extroversion 0.425 0.103 0.285 4.114 0.000
Neuroticism
0.176 0.090
0.127
1.961 0.028
898 Openness 0.292 0.107 0.182 2.736 0.007
Agreeableness 0.180 0.097 0.128 1.857 0.004
Conscientiousness
0.353 0.091
0.250
3.894 0.000
Fin_Literacy 0.530 0.190 0.181 2.792 0.006
2 (Constant)
0.778 1.151
0.676 0.500
Extroversion 0.773 0.234 0.518 3.305 0.001
Neuroticism 0.212 0.197 0.153 1.077 0.283
Openness 0.259 0.239 0.162 1.083 0.280
Agreeableness
0.074 0.215
0.053
0.344 0.731
Conscientiousness
0.308 0.211
0.218
1.462 0.145
Fin_Literacy 3.918 1.892 1.341 2.071 0.040
Finxextro
0.582 0.360
0.728
1.617 0.108
Finxneuro
1.411 0.308
0.656
2.017 0.045
Table 13. Finxopenn 0.019 0.398 0.022 0.047 0.962
Coefficients of Finxagree 0.587 0.384 0.740 1.530 0.128
moderated multiple FinxCons
0.522 0.140
0.645
3.739 0.000
regression Note(s): aDependent Variable: Inves_Risk_Behv

Table 14.
Results of moderation Variables B SE β t value p-value LLCI ULCI
between neuroticism
and investor risk Neuroticism 0.4276 0.2147 1.9919 0.0479 0.004 0.8512
behavior through Financial literacy 4.4893 1.1002 4.0806 0.0001 2.3182 6.6605
Andrew Hayes process Interaction
1.415 0.3790
3.7341 0.0003
2.1630
0.6672

investor risk behavior. This means financial literacy influences the neurotic behavior of
investors and makes them more neurotic concerning investment decisions (see Figure 4).
The moderating variable that is financial literacy worked as a predictor variable. Multiple
regression analysis has been run to check the moderating impact of financial literacy between
neuroticism and investor risk behavior. The neuroticism has negative direct impact on
investor risk behavior (β 5
0.127, t-value 5
1.96 and p-value 5 0.028). Financial literacy
has weakened the direct relationship between neuroticism and investor risk behavior having
statistical values (β 5
1.41, t-value 5
2.01 and p-value 5 0.04). This means financial
literacy influences the neurotic behavior of investors.
Table 15 presents the result of the moderation analysis of financial literacy between
conscientiousness and investor risk behavior through Andrew F. Hayes Process (2013). The
value of LLCI is (
0.186) and ULCI is (0.712). The interaction term for financial literacy and
conscientiousness is LLCI (
1.669) and ULCI (
0.129), with a p-value (p 5 0.022). Hence,
financial literacy moderates the relationship between conscientiousness and investor risk
behavior. It influences the conscientiousness behavior of investors and makes them more
conscientious in investment decisions (see Figure 5).
Moderation analysis has been run to check the moderating impact of financial literacy
between conscientiousness and investor risk behavior. Conscientiousness has a negative
direct impact on investor risk behavior (β 5
0.25, t-value 5
3.894 and p-value 5 0.000).
 Financial
literacy’s
moderating
role

899

Figure 4.
Showing interactive
effect of financial
literacy between
neuroticism and
investor risk behavior

Variables B SE β t value p value LLCI ULCI Table 15.

Showing moderation
Conscientiousness 0.2634 0.2278 1.1566 0.2490
0.1860 0.7129 between
Financial literacy 3.5381 1.3023 2.7169 0.0072 0.9682 6.1081 conscientiousness and
Interaction
0.8991 0.3902
2.304 0.022
1.669
0.129 investor risk behavior

Figure 5.
Showing interactive
effect of financial
literacy between
conscientiousness and
investor risk behavior

The interaction term of financial literacy and conscientiousness shows that financial literacy
has weakened the direct relationship between conscientiousness and investor risk behavior
having statistical values (β 5
0.522, t-value 5 3.73 and p-value 5 0.000). This means
financial literacy influences the conscientious behavior of investors and makes them more
conscientious in investment decisions.
MF 6. Conclusion
49,5 Based on empirical findings, it can be concluded that extroverts like to invest in risky assets
as high level of extroversion primes individuals for risky investment opportunities. At the
same time, neurotics showed a negative attitude towards risk because of anxiety, stress and
emotional instability. They reflect low-risk tolerance and try to avoid risky investments
(Gambetti and Giusberti, 2019). Further, financial literacy has weakened the direct
relationship between neuroticism and investor risk behavior and influences the neurotic
900 behavior of investors to makes them more neurotic regarding risky investments.
Openness to experience like to experience new investments, welcome new Initial Public
Offerings (IPOs), do not take the stress from market fluctuations and show a positive attitude
towards risk. Agreeableness has been positively, while conscientiousness has been
negatively associated with investor risk behavior. Financial literacy moderated the
relationship between neuroticism, conscientiousness and investor risk behavior. Financial
literacy induces neuroticism and makes them more risk averse in investment decisions.
Investors with conscientiousness traits do not invest quickly, take planned and informed
decisions and do not prefer risk. Financial literacy increases conscientiousness and refrains
them from investing in risky assets. Investors in the current time have complex financial
needs which are far beyond the day-to-day financial advice. Current study brings critical
solutions based on evidence and provides guidance for the introduction of advanced
investment options to enhance stable investment culture and to protect investors from scams
and frauds. Further research can consider the two-fold role of individuals’ personalities in
case of gains and losses for the interest to the researchers.

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Corresponding author
Muhammad Akhtar can be contacted at: [email protected]
MF Appendix:
Questionnaire
49,5
Neither
Disagree Disagree a agree nor Agree a Agree
Sr. No Items strongly little disagree little strongly

904 1 I see myself as someone who is 1 2 3 4 5

talkative
2 I see myself as someone who 1 2 3 4 5
tends to find fault with others
3 I see myself as someone who 1 2 3 4 5
does a thorough job
4 I see myself as someone who is 1 2 3 4 5
depressed, blue
5 I See myself as someone who 1 2 3 4 5
is original, comes up with new
ideas
6 I see myself as someone who is 1 2 3 4 5
reserved
7 I see myself as someone who is 1 2 3 4 5
helpful and unselfish with
others
8 I see myself as someone who 1 2 3 4 5
can be somewhat careless
9 I see myself as someone who is 1 2 3 4 5
relaxed, handles stress well
10 I see myself as someone who is 1 2 3 4 5
curious about many different
things
11 I see myself as someone who is 1 2 3 4 5
full of energy
12 I see myself as someone who 1 2 3 4 5
starts quarrels with others
13 I see myself as someone who is 1 2 3 4 5
a reliable worker
14 I see myself as someone who 1 2 3 4 5
can be tense
15 I see myself as someone who is 1 2 3 4 5
ingenious, a deep thinker
16 I see myself as someone who 1 2 3 4 5
generates a lot of enthusiasm
17 I see myself as someone who 1 2 3 4 5
has a forgiving nature
18 I see myself as someone who 1 2 3 4 5
tends to be disorganized
19 I see myself as someone who 1 2 3 4 5
worries a lot
20 I see myself as someone who 1 2 3 4 5
has an active imagination
21 I see myself as someone who 1 2 3 4 5
tends to be quiet
22 I see myself as someone who is 1 2 3 4 5
generally trusting
23 I see myself as someone who 1 2 3 4 5
tends to be lazy

(continued )
 Neither
Financial
Disagree Disagree a agree nor Agree a Agree literacy’s
Sr. No Items strongly little disagree little strongly moderating
24 I see myself as someone who is 1 2 3 4 5 role
emotionally stable, not easily
upset
25 I see myself as someone who is 1 2 3 4 5 905
inventive
26 I see myself as someone who 1 2 3 4 5
has an assertive personality
27 I see myself as someone who 1 2 3 4 5
can be cold and aloof
28 I see myself as someone who 1 2 3 4 5
perseveres (keep trying) until
the task is finished
29 I see myself as someone who 1 2 3 4 5
can be moody
30 I see myself as someone who 1 2 3 4 5
values artistic, esthetic
experiences
31 I see myself as someone who is 1 2 3 4 5
sometimes shy, inhibited
32 I see myself as someone who is 1 2 3 4 5
considerate and kind to
almost everyone
33 I see myself as someone who 1 2 3 4 5
does things efficiently
34 I see myself as someone who 1 2 3 4 5
remains clam in tense
situations
35 I see myself as someone who 1 2 3 4 5
prefers works that is routine
36 I see myself as someone who is 1 2 3 4 5
outgoing, sociable
37 I see myself as someone who is 1 2 3 4 5
sometimes rude to others
38 I see myself as someone who 1 2 3 4 5
makes plans and follow
through with them
39 I see myself as someone who 1 2 3 4 5
gets nervous easily
40 I see myself as someone who 1 2 3 4 5
likes to reflect, play with ideas
41 I see myself as someone who 1 2 3 4 5
has few artistic interests
42 I see myself as someone who 1 2 3 4 5
likes to cooperate with others
43 I see myself as someone who is 1 2 3 4 5
easily distracted
44 I see myself as someone who is 1 2 3 4 5
sophisticated in art, music or
literature
45 Fluctuations in the stock 1 2 3 4 5
market do not concern me
46 The constant media reporting 1 2 3 4 5
of stock market fluctuations
does not bother me