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Understanding Investor Behavior: The Impact of Risk Perception, Financial Stress, and Literacy on Investment Decisions

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  • Pankaj Kumar
  • Sana Beg
  • Mohd Shafeeq

Abstract

This study investigates the influence of risk perception, financial stress, and financial literacy on investment intention and behavior. Drawing on the behavioral finance framework, the research challenges traditional rational decision-making models by highlighting the critical role of these factors. Using data collected from investors in the Delhi NCR region, the study applies Partial Least Squares Structural Equation Modeling (PLS-SEM) to examine these relationships. The findings reveal that financial literacy and perceived risk significantly and positively impact investment intentions, while financial stress does not exhibit a notable effect. Furthermore, investment intention is a significant predictor of actual investment behavior, reinforcing the theory of planned behavior. This study contributes to the growing body of behavior finance literature by understanding how psychological and cognitive factors influence investment decisions. Practical implications include the need for improved financial literacy programs and better management of risk perceptions to promote informed investment behaviors.

Suggested Citation

  • Pankaj Kumar & Sana Beg & Mohd Shafeeq, 2025. "Understanding Investor Behavior: The Impact of Risk Perception, Financial Stress, and Literacy on Investment Decisions," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 17(1), pages 25-40, June.
    • Handle: RePEc:rfb:journl:v:17:y:2025:i:1:p:25-40
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