The Mediating Influence of Risk Tolerance on Behavioral Biases and Investment Decisions: Evidence from Pakistan

Abstract

The Pakistan Stock Exchange faces persistently low participation of investors in past few years and high market volatility, which hinder its development and stability. To address these challenges, the purpose of this study is to investigate how behavioral factors affect investors’ investment decisions. The study also examines risk tolerance role as a mediator in the relationship between behavioral factors and investors’ investment decisions. Non-probability sampling was used to collect responses from 310 investors. The findings of the study reveal that biases such as herding bias, overconfidence bias and self-control bias significantly and positively impact investors’ decision making while risk tolerance significantly mediates between behavioral biases and investors’ decision making. Discussions, conclusions and implications of the study are presented based on the results.