Personality, financial self-efficacy and investment decisions: The role of need for cognition and individual moods

Abstract

Using theories from personality psychology and the theory of planned behavior, this study investigated those personality variables and psychological mechanisms through which individual investor intends to make investment decisions. The main purpose of this study was to examine the relationship between big five personality traits (Extroversion, Neuroticism, Conscientiousness, Openness to Experience and Agreeableness) and Investment decisions (Short term and long term). This study also examined the moderating effects of need for cognition, individual mood and mediating effects of financial self efficacy between the study variables. Data was collected from 506 individual investors by using a questionnaire. Investors were selected from Pakistan Stock Exchange. Mediation analysis was performed using Hayes (2013) PROCESS macro in SPSS. Results of the study supported a positive relationship between openness to experience, extraversion and short term investment decision. Similarly a positive relationship existed between neuroticism, conscientiousness and long term investment decisions. The results from bootstrapping supported the mediation hypothesis and financial self-efficacy mediated the relationship between

agreeableness, openness to experience and short term investment decision. Further the results also supported the mediating effect of financial self-efficacy between neuroticism, conscientiousness and long term investment decision. To test the moderation hypotheses step-wise regression analysis techniques were used. The results confirmed the moderating effect of need for cognition for extrovert & neurotic investors on financial-self efficacy. The result of the study also supported the modrating role of mood on short term investment decisions. In conclusion this study has made an integrated attempt to examine the combined effect of personality, cognition and mood on an individual’s short and long term investment decisions. Drawing on the findings we discussed some implications for the policy makers including investment marketers, investment advisors and offered an advice to investors in addition to discussing some limitations and future directions