Role of Psychological Factors and Market Volatility on Investors Investment Behaviour: Moderated Mediation Model

Abstract

The present study focuses on the complex relationships among financial literacy, financial risk perception, and market value, as well as psychological factors and investment behavior. The current study population includes individual investors investing in Pakistan stock exchange. The sample size of the study consisted of 500 individual investors investing in Pakistan stock exchange. The results show that whereas financial literacy significantly improves investment behavior, financial risk perception has negative connotations with it. Market value and psychological factors positively influence financial risk perception and investment behavior. The mediation analysis reveals that the component of financial risk perception partially mediates the association between market value, psychological factors, and investment behavior. Moderation analysis revealed that market value and psychological factors strengthen financial literacy's impact on investment behavior. These findings identify a need for emphasis on financial education, risk management, and psychological support in making better investment decisions. Limitations of the study were in terms of its cross-sectional design, sample size, and reliance on self-reported data; therefore, indicating avenues of future research.