Moderating Effect of Risk Perception on Financial Knowledge, Literacy and Investment Decision
Article Sidebar
Main Article Content
Abstract
Financially unsophisticated investors who consistently make sub-optimal financial decisions may suffer lasting
consequences for long-term wealth accumulation and welfare. This study examines moderating effect of risk
perception on financial knowledge, literacy and investment decision. Data was collected from 378 investors through
the aids of structured questionnaires. The research hypotheses were tested using partial Least-square (PLS)
regression. The findings reveals that there is positive and significant effect between financial knowledge, risk
perception and investment decisions, while positive but insignificant effect was found between financial literacy and
investment decisions. However, risk perception moderates the effect of financial literacy, investment knowledge on
investment decisions. It recommends that investors, policymakers and individuals investors should embark on
various educational programmes, to further influence the level of their investment decisions before committing their
hard earning fund into project.
Downloads
Metrics
Article Details
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
Al‐Tamimi HAH, Al Anood K (2009). Financial literacy and investment decisions of UAE investors, The
Journal of Risk Finance 10(5), 500 – 516.
Ameriks, K. (2003). Interpreting Kant's Critiques: Kant and traditional ontology; Kant
and short arguments to humility. Oxford University Press.
Anthony,A.E., & Harry.E. (2017). The SME manager and financial literacy. Global business review. Vol 18,
issue 3, pp.559-576
Ashwinprabha, V., & Pandian, P. M. (2016). Interrelationship between Investment Behaviour and Financial
Literacy: A study with specific reference to Married Women in Pollachi Taluk. International
Journal, 4(6).
Asaad, C. T. (2015). Financial literacy and financial behavior: Assessing knowledge and confidence. Financial
Services Review, 24(2), 101.
Aubram, T., Kovarova-Simecek, M., & Wanzenried, G. (2016). Financial Literacy, Pension Planning, and
Investment Behavior-A Comparative Study between Austria and Switzerland.
Biais, B., & Weber, M. (2009). Hindsight bias, risk perception, and investment performance. Management
Science, 55(6), 1018-1029.
Bhushan, P. (2014). Relationship between Financial Literacy and Investment Behavior of Salaried
Individuals. Journal of Business Management & Social Sciences Research, ISSN, (2319-5614), 82-
Cohen, J. (1988). Statistical power analysis for the behavioral sciences (2nd ed.). New Jarsey: Lawrence Erlbaum
Associates, Publishers.
Courchane, Marsha, and Peter Zorn, (2005), Consumer literacy and creditworthiness, Federal Reserve System
Conference, Promises and Pitfalls: As Consumer Options Multiply, Who Is Being Served and at What
Cost (Wisconsin Department of Financial Institutions, Task Force on Financial Literacy).
Carpena, F., Cole, S. A., Shapiro, J., & Zia, B. (2011). Unpacking the causal chain of financial literacy
Chaturvedi, M., & Khare, S. (2012). Study of saving pattern and investment preferences of individual
household in India. International Journal of Research in Commerce and Management, 3(5), 115-
Cole, Shawn, Thomas Sampson, and Bilal Zia, 2009, valuing financial literacy training, Conference on
measurement, promotion, and impact of access to financial services (Washington DC). Cole, Shawn,
Thomas Sampson, and Bilal Zia, 2011, Prices or knowledge?
Demir, K. (2015). The effect of organizational justice and perceived organizational
support on organizational citizenship behaviors: The mediating role of
organizational identification. Eurasian Journal of Educational Research, 60, 131-
Doi: 10.14689/ejer.2015.60.8.
OECD. 2005. Improving Financial Literacy: Analysis of Issues and Policies . Paris: OECD Publishing.
Garson, D. (2016). Partial Least Squares: Regression & Structural Equation Models. USA: Statistical Associates
Publishing.
Geetha, N., & Ramesh, M. (2011). A study on people‟s preferences in Investment Behaviour. International
Journal of Engineering and Management Research, 1(6), 1-10.
Gupta, S. (2017). study the relationship of financial literacy and investment behaviour of salaried class
individuals of delhi. International Education and Research Journal, 3(5).
Hair, J., Black, W., Babin, B., & Anderson, R. (2014). Multivariate data analysis (7th ed.). UK: Pearson New
International Edition.
Hathaway, I., & Khatiwada, S. (2008). Do financial education programs work? (Working Paper No 08–03).
Ohio: Federal Reserve Bank of Cleveland. Retrieved 20 April 2015, from
https://papers.ssrn.com/sol3/papers. cfm?abstract_id=1118485.
Hilgert, M. A., Hogarth, J. M., & Beverly, S. G. (2003). Household financial management: The connection
between knowledge and behavior. Fed. Res. Bull., 89, 309.
Hollenbeck, J. R., & Klein, H. J. (1987). Goal commitment and the goal-setting process: Problems, prospects, and
proposals for future research. Journal of applied psychology, 72(2), 212.
Huston, S. J. (2010). Measuring financial literacy. Journal of Consumer Affairs, 44(2), 296- 316.
Jordan, J., & Kaas, K. P. (2002). Advertising in the mutual fund business: The role of judgmental heuristics in
private investors' evaluation of risk and return. Journal of Financial Services Marketing, 7(2), 129-
Janor, H., Yakob, R., Hashim, N., & Wel, C. (2016). Financial literacy and investment decisions in Malaysia and
United Kingdom: A comparative analysis. Malaysian Journal of Society and Space, 12(2), 106-118.
Janor, H., Wel, C. A. C., & Hakim, L. (2014). Financial Literacy and Investment Decisions. miicema 2014
organising committee, 570.
Locke, E. A., & Latham, G. P. (2002). Building a practically useful theory of goal setting and task motivation:
A 35-year odyssey. American psychologist, 57(9), 705.
Kahneman, Daniel, and Amos Tversky, (1979), “Prospect theory: An analysis of decision under
risk.”Econometrica. 47,263-91.
Khan, S. N. (2016). Impact of Financial Literacy, Financial Knowledge, Moderating Role of Risk Perception
on Investment Decision.
Keh, H. T., Foo, M. D., & Lim, B. C. (2002). Opportunity evaluation under risky conditions: The cognitive
processes of entrepreneurs. Entrepreneurship theory and practice, 27(2), 125-148.
Lenat, D. B. (1995). CYC: A large-scale investment in knowledge infrastructure. Communications of the
ACM, 38(11), 33-38.
Lusardi, A., & Bassa Scheresberg, C.D. (2013). Financial literacy and high-cost borrowing in the United States
(Working Paper Series/National Bureau of Economic Research). Cambridge, MA: National Bureau
of Economic Research.
Lusardi, A., & Mitchell, O. S. (2011). Financial literacy around the world: an overview. Journal
of Pension Economics and Finance, 10(04), 497-508.
Lusardi, A., & Mitchell, O. S. (2007). Baby boomer retirement security: The roles of planning, financial
literacy, and housing wealth. Journal of monetary Economics, 54(1), 205-224.
Liu, Y. J., Tsai, C. L., Wang, M. C., & Zhu, N. (2010). Prior consequences and subsequent risk taking: New
field evidence from the Taiwan Futures Exchange. Management Science, 56(4), 606-620.
Marcolin, S., & Abraham, A. (2006). Financial literacy research: Current literature and future opportunities.
Proceedings of the 3rd International Conference of Contemporary Business, Leura NSW, Australia.
Moore, D. (2003). Survey of financial literacy in Washington State: Knowledge, behavior, attitudes, and
experiences (Technical Report No. 03–39). Olympia, WA: Social and Economic Sciences Research
Center, Washington State University.
Mathi, M. K., & Kunkumapriya, A. (2014). Review of Literature on Investment Behavior of Rural Investors.
International Journal of Science and Research, 3(14), 351-353.
Mahdzan. N.S., Tabiani, S. (2013), ,, The impact of financial literacy on individual saving: An explonatory
study in the Malaysian context”, transformations in business and economics, Vol.12, No 1 (28),
pp41-55.
Modigliani, F. and R. Brumberg (1954), “Utility Analysis and the Consumption Function: An Interpretation of
Cross-Section Data,” in K. Kurihara (ed.), Post Keynesian Economics, Rutgers University Press, New
Brunswick, NJ.
Robb, Cliff A, (2011), financial knowledge and credit card behavior of college students, Journal of Family and
Economic Issues 32, 690-698.
Remund D. L., 2010 Financial Literacy Explicated: The Case for a Clearer Definition in an Increasingly
Complex Economy. Journal of Consumer Affairs, 44,276-295. doi: 10.1111/j.1747-
2010.01169.x.
Tschirley, D. L., Ayieko, M. W., Mathenge, M. K., & Weber, M. (2004). Where do consumers in Nairobi
purchase their food and why does this matter? The need for investment to improve Kenya's"
traditional" food marketing system (No. 54643). Michigan State University, Department of
Agricultural, Food, and Resource Economics.
Shafi, H., Akram, M., Hussain, M., Sajjad, S. I., & Rehman, K. U. (2011). Relationship between risk perception
and employee investment behavior.
Sekita, S. (2011). Financial literacy and retirement planning in japan. Journal of Pension Economics & Finance,
(4), 637-656. doi:http://dx.doi.org/ 10.1017/ S14747 47211 000527.
Sewell M (2010) Behavioral finance. University of Cambridge, 1-13.
Tsai, C. L., Wang, M. C., & Zhu, N. (2010). Prior consequences and subsequent risk taking: New field
evidence from the Taiwan Futures Exchange. Management Science, 56(4), 606-620.
Van Rooij, Maarten, Annamaria Lusardi, and Rob Alessie, 2007, financial literacy and stock market
participation, NBER Working Paper No. 13565 (National Bureau of Economic Research).
Varadharajan, P. (2016). Economic Development of Rural Population through Capital Market Inclusion in
Coimbatore, India. Purushartha: A Journal of Management Ethics and Spirituality, 8(1).
Xu, Lisa, and Bilal Zia, (2012), financial literacy around the world: An overview of the evidence with practical
suggestions for the way forward, Policy Research Working Paper No. 6107 (World Bank).
Zhong, L.X.,Xiao,J.J. (1995), Determinants of family bond and stock holdings “ financial counselling and
planning, Vol.6,pp.107-114.