Abstract:
Behavioral finance focuses on psychological factors—such as risk perception
and portfolio management—that play a crucial role in investors’ financial decisionmaking.
This study investigates the effect of risk tolerance and demographic
characteristics on risk perception and portfolio management, which, in turn, affect
investors’ decisions. Applying structural equation modeling to data collected from a
sample of 120 respondents, we find a significant and positive relationship between
risk perception and risk tolerance. Similarly, certain demographic characteristics,
such as age and education, have a significant and positive relationship with risk
perception while others, such as income and gender, have a significant but negative
relationship with risk perception. Risk tolerance has a significant but negative
relationship with portfolio management. Age, education, and income have a
significant but negative relationship with portfolio management, while gender has a
significant and positive relationship with portfolio management.
