Behavioral Indicators and Investor Sentiments Regarding Portfolio Risk Tolerance

This study aims to provide behavioral indicators and investor sentiments regarding portfolio risk tolerance.

The research employs an interpretive paradigm and thematic analysis approach. In the qualitative phase, using purposive sampling, 16 interviews were conducted with investors until theoretical saturation was reached. The interview data were analyzed through open coding, producing a network of themes related to investors’ sentiments and behavioral reactions concerning portfolio risk tolerance. These themes were categorized into 46 basic themes, 15 organizing themes, and 4 global themes: perceptual biases, judgment biases, emotional (affective) biases, and cultural factors. In the quantitative phase, to validate the qualitative model, a questionnaire based on qualitative findings was designed and completed by 256 experts, managers in the stock exchange field, and university professors. Cronbach's alpha and average extracted variance (AVE) for all components were above 0.7 and 0.5, respectively, and the composite reliability also exceeded the 0.7 threshold, confirming reliability and convergent validity.

Quantitative findings confirmed the validity of each of the four global themes, including perceptual, judgment, emotional biases, and cultural factors. The ranking results of the global themes indicated that judgment bias, with an average score of 5.13, had the highest rank in terms of likelihood and impact, significantly affecting investor sentiments and behavioral reactions concerning portfolio risk tolerance. Likewise, the other indicators, including perceptual biases, cultural factors, and emotional biases, followed in the subsequent ranks.

This study demonstrated that judgment biases play a more prominent role than other biases in shaping investor sentiments and behavioral reactions toward portfolio risk tolerance. These findings can assist analysts and financial managers in designing optimized strategies for managing investor behavior.