Financial risk tolerance and investment decisions of retail equity investors in Kerala

Abstract

Risk is not just about numbers; but rather about understanding the human psyche in the face of uncertainty. In the realm of financial markets, unraveling the mysteries of financial risk tolerance unveils the intricate dance between rational analysis and the emotional decision-making of investors. In the quest to diagnose this, four major objectives were signified: (i) To understand the concept of ‘Financial Risk Tolerance’ and its relevance in making Investment Decisions among retail equity investors in Kerala; (ii) To examine the factors influencing the Financial Risk Tolerance and Investment Decisions of retail equity investors in Kerala; (iii) To evaluate the influence of factors contributing towards Financial Risk Tolerance and Investment Decisions of retail equity investors in Kerala; (iv) To analyse the influence of Financial Risk Tolerance towards Investment Decisions of retail equity investors in Kerala. This doctoral thesis investigates the relationship between financial risk tolerance and investment decisions among retail equity investors in Kerala, India. As one of the nation's most progressive states, Kerala has been at the forefront of bringing about significant changes to the socioeconomic makeup of the populace. The growing popularity of retail equity investment in the nation makes it worthwhile to look at how Kerala State's vibrant and enterprising citizens are positioning themselves in terms of risk appetite and equity market investment. A sequence of 7 chapters in the thesis has been aligned based on the Revised Bloom’s Taxonomy. The Attractive feature of this study is its Descriptive and Analytical Research Design and the sampling procedure adopted. Exhaustive literature reviews from the SCOPUS Database, hailing from the Behavioural Finance lens, from 1992 up to 2023 have been recorded; and the variables were selected for the study using a Systematic Literature Review involving the PRISMA Methodology, Bibliometric Analysis, and the TCCM Analysis. The Conceptual model was prepared based on the existing Theories, Experiments, Paradoxes, and Models of various experts underlying this study. The peculiarity of the study involves the approach toward evaluating risk from psychological, biological, and contextual perspectives of risk. The study period spans from 2019 to 2023, and data collection occurs both during and after the pandemic. After calculating the minimum number of respondents (384.6) using Fisher's Formula, 450 respondents in total were taken into consideration for the study; selected from all fourteen districts of Kerala; using a blend of Purposive and Snowball sampling adopted. The pilot study involved 50 respondents across Kerala for reliability testing and validating the questionnaire. The Data have been collected from a mailed questionnaire as the primary source of data and; also, through secondary sources of data like reference books, journals, articles, PhD theses, newspapers, NSE BSE websites, etc. The questionnaire for the final data collection was scaled up after content validation with input from statisticians, psychologists, stock brokers, and professors with expertise in behavioural finance, commerce, and management. Data extraction was done using SPSS version 26, MS Excel, and econometrics in preparation for additional statistical analysis. To further test the study's hypotheses, regression analysis, one-way ANOVA, and the independent samples t-test were employed. The study also highlights the importance of investing decisions, emphasizing that each investor should work to improve their level of financial risk tolerance, risk attitude, and risk perception, as well as to be wary of biased associates. Additionally, the researcher proposed that retail investors can make prudent investments by becoming well-versed in businesses and programs at the grassroots level, beginning with households and educational institutions and working their way up to companies, industries, and financial institutions. To help decision-makers, investors, and academics alike create a more knowledgeable and resilient investment climate in Kerala, this study acts as a link between scholarly inquiry and practical application. Comprehending the correlation between investment decisions and financial risk tolerance is crucial in the complex realm of finance, particularly for retail equities investors in Kerala. Individual investors' choices affect not just their financial futures but also the regional and national economy more widely. These ramifications go well beyond the confines of individual portfolios. Individuals' welfare and financial security are crucial at the social level. Further navigating the policy environment is necessary to protect investors' interests, and regulatory organizations and policymakers are key players in this regard. Governments in Kerala may ensure that financial products are appropriate for the risk profiles of their constituents by using study findings to create rules that shield them from investments that carry an excessive amount of risk. Finally delving into the managerial sphere, where financial institutions and advisors are tasked with translating research insights into practical strategies for the benefit of their clients. Given regional variations in comfort levels and demography, the researcher's tested and proposed model can be used in other states or across other geographic borders. By incorporating neuroscientific ideas into this research, we may get a deeper understanding of decision- making in the context of financial risk and shed light on the brain mechanisms that influence investor behaviour. Financial professionals ought to include behavioural finance concepts in their advising services, given the substantial influence that behavioural biases have on investing decisions. This can enable investors to recognize and counteract cognitive biases that could cause them to make less-than-ideal choices. Given the increasing impact of financial technology, it is essential to examine how the adoption of new tools and platforms influences risk tolerance and investment decisions in Kerala. This research can provide valuable insights for the creation of technological solutions that are investor-friendly. To conclude, we are reminded that every portfolio tells a tale of risk that is either accepted or avoided via our investigation of financial risk tolerance and investment choices. The ability to accept uncertainty and turn obstacles into opportunities for financial progress is what defines risk tolerance, not a fear of failing. It is the guiding principle that helps investors make wise decisions in the mist of volatile markets as they pursue wealth creation. Comprehending these stories not only enhances our understanding of market dynamics but also enables investors to negotiate the choppy waters of uncertainty more confidently and resiliently.