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Behavioral finance factors and investment decisions: A mediating role of risk perception

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  • Bashar Yaser Almansour
  • Sabri Elkrghli
  • Ammar Yaser Almansour

Abstract

Modern finance theory assumes that the stock market is efficient, and stock prices reflect all available information. However, behavioral finance theory argues that stock prices can be influenced by psychological and emotional factors. This study aims to examine the impact of behavioral finance factors on investment decisions in the Saudi equity markets through the mediating variable of risk perception. An online questionnaire was distributed to 150 individual investors, out of which 134 were returned and ready for analysis. The data is analyzed using structural equation modeling (SEM). The results show that herding, disposition effect, and blue chip bias have a significant positive impact on risk perception. Overconfidence has a significant positive effect only on investment decision making, but not on risk perception. Risk perception is found to be significantly positively related to investment decision making. All four behavioral finance factors have a significant positive indirect effect on investment decision making through risk perception. This study is conducted in a particular cultural context, namely Saudi Arabia, and may not be generalizable to other cultural contexts. Moreover, this study focused only on four behavioral finance factors, and there may be other factors that could impact risk perception and investment decision making. The results highlight the importance of considering an individual’s perception of risk when making investment decisions, as it can significantly impact their willingness to take risks and ultimately affect the performance of their investment portfolio. The results suggest the need for investors to consider their behavioral biases and for advisors and policymakers to develop strategies to mitigate their impact.

Suggested Citation

  • Bashar Yaser Almansour & Sabri Elkrghli & Ammar Yaser Almansour, 2023. "Behavioral finance factors and investment decisions: A mediating role of risk perception," Cogent Economics & Finance, Taylor & Francis Journals, vol. 11(2), pages 2239032-223, June.
    • Handle: RePEc:taf:oaefxx:v:11:y:2023:i:2:p:2239032
    DOI: 10.1080/23322039.2023.2239032
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    Cited by:

    1. Liu, Jie & Zhang, Jingru & Chen, Zhenshan, 2025. "The effect of stock market manipulation on investor behavioral bias," Journal of Behavioral and Experimental Finance, Elsevier, vol. 47(C).
    2. Zongwu Cai & Jinyan Li, 2025. "Mediation Analysis of the China-US Trade War Effects," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 202603, University of Kansas, Department of Economics, revised Jan 2026.
    3. Harshita Srivastava & Sana Moid, 2026. "Behavioral biases and individual investors investment decisions: mediating role of financial risk tolerance," Quality & Quantity: International Journal of Methodology, Springer, vol. 60(1), pages 2275-2295, February.
    4. Singh Sanjeet & Madaan Geetika & Singh Amrinder & Swapna H.R. & Asthana Satish Kumar, 2025. "Behavioural Biases and Investment Decision Making: The Mediating Role of Risk Perception, according to Evidence from the Indian Stock Market," Folia Oeconomica Stetinensia, Sciendo, vol. 25(2), pages 236-261.
    5. Taimoor Ali Shah & Jehanzeb Khan & Afraseyab Khattak & Dr. Hafiz Adnan Majeed & Dr. Farman Ullah Jan, 2024. "Cognitive Shortcuts in Finance: Heuristics Biases on Investment Decision: Mediating Effect of Risk Perception," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(2), pages 1173-1179.
    6. AsleBagh, Pegah & Bonyadi Naeini, Ali & Moeeni, MohammadReza, 2024. "Investigating the effect of three different factors including experience, personality and color on the decision-making process in stock markets using EEG," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 109(C).
    7. Ishrat Bashir & Sushil Kumar Mehta, 2026. "Impact of heuristics driven biases and emotional biases on investment behavior: a study of retail investors," Quality & Quantity: International Journal of Methodology, Springer, vol. 60(1), pages 655-676, February.
    8. Ren, Xiaohang & Li, Jingyao & Duan, Kun & Parhi, Mamata, 2025. "Cross-category spillovers of uncertainties in energy transition: Insights from a full-distributional framework," Energy Economics, Elsevier, vol. 149(C).
    9. Anurag Singh & Utkarsh Goel & Shailendra Kumar & Amar Johri, 2025. "Unveiling the attitudinal factors: an integration of TPB and SCT in understanding investor intention towards equity investments," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-14, December.
    10. Bosede Olatomi Ige & Stanley Chibuzor Onwubu, 2025. "Understanding the influence of investors' risk perception on investment decision-making in South Africa’s financial markets," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 14(6), pages 108-120, August.
    11. Vivek Verma & Praveen Singh & Rajesh Tiwari & Dinesh Chandra Pandey, 2025. "Sustainable investing through a gendered lens: the role of locus of control and risk perception," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 30(4), pages 1-16, December.
    12. Amare Abawa Esubalew, 2024. "Beyond access to capital: exploring the effect of behavioral biases on the growth of micro, small, and medium enterprises (MSMEs)," SN Business & Economics, Springer, vol. 4(12), pages 1-21, December.
    13. Mabruk Billah & Mohammad Enamul Hoque & Ghadeer Kayal, 2025. "Multifractal analysis of GCC banking stock efficiency dynamics: impact of financial stress, economic policy uncertainty, and geopolitical factors," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 15(3), pages 641-686, September.
    14. Zhou, Jingyi & Xie, Mengyuan, 2025. "Supply chain risk perception and corporate green innovation bubbles," Finance Research Letters, Elsevier, vol. 85(PC).
    15. Li, Jingmei & Li, Shuqin & Zhou, Yufei & Xue, Yukun & Liu, Juan, 2025. "Firms under water! harmful algal blooms and corporate performance of coastal enterprises in China," Journal of Business Research, Elsevier, vol. 201(C).
    16. Seda Yılmaz, 2024. "Comparison of Consumer Ethics Perception of Islamic Banking Customers with Conventional Banking Customers of Turkey: A Study from Turkish Banking System," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 14(5), pages 1-1.

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