The Relationship between Risk Propensity, Risk Perception and Risk-Taking Behaviour in an Emerging Market

Authors

  • Fazelina Sahul Hamid Universiti Sains Malaysia, Malaysia
  • Gary John Rangel Monash University Malaysia, Malaysia
  • Fauziah M. Taib Universiti Sains Malaysia, Malaysia
  • Ramayah Thurasamy Universiti Sains Malaysia, Malaysia

DOI:

https://doi.org/10.32890/ijbf2013.10.1.6

Keywords:

risk propensity, risk perception, risk-taking behaviour, empirical study

Abstract

This paper reports evidence to support a relationship between risk propensity, risk perception, and risk-taking behaviour of investors in an emerging market. Primary data were gathered using a validated structured questionnaire, which was self-administered by respondents: there were 162 investors from 8 stockbroking companies. A multiple regression was used to test the direct and indirect effects of the identified behavioural characteristics on investment decision. Risk propensity was found to be positively related to risk-taking behaviour whereas risk perception was negatively related to risk-taking behaviour. It was further found that risk perception partially mediates the effect of propensity to take risk. This suggests that the perceptual framing of a situational context in the investors’ thought processes reduces but it does not totally overwhelm the innate personality traits with respect to either the investor’s risk-seeking or risk-averseness. The tendency to engage in risky behaviour is more psychological in nature. The implications of the research are further explored.

 

References

Baron, R. M., & Kenny, D. A. (1986). The moderator-mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51(6), 1173-1182.

Brockhaus, S. R. H. (1980). Risk taking propensity of entrepreneurs. Academy of Management Journal, 23(3), 509-520. doi: 10.2307/255515.

Byrne, K. (2005). How do consumers evaluate risk in financial products? Journal of Financial Services Marketing, 10(1), 21-36.

Chan, T. H. (2010). Malaysia lures individual investors to market shunned since Asian crisis. Bloomberg. Retrieved September 28, 2012, from http://www.bloomberg.com/news/2010-06-09/malaysia-seeks-to-lure-individual-stock-traders-decade-after-asian-crisis.html

Chieh, Y. H. (2010). Ordinary Malaysians shun stock market amid stalling recovery. The Malaysian Insider. Retrieved September 28, 2012, from http://www.themalaysianinsider.com/business/article/ordinary-malaysians-shun-stock-market-amid-stalling-recovery/

Diacon, S. (2004). Investment risk perceptions: Do consumers and advisers agree? The International Journal of Bank Marketing, 22(3), 180-198.

Dutton, J. E., & Jackson, S. E. (1987). Categorizing strategic issues: Links to organizational action. Academy of Management Review, 12(1), 76-90. doi: 10.5465/amr.1987.4306483

Garvey, J. (2010). An investigation into risk propensity in bull and bear markets. Journal of Risk Research, 13(6), 789-804. doi: 10.1080/13669870903560283

Gerrans, P., Faff, R., & Hartnett, N. (2012). Individual financial risk tolerance and the global financial crisis. doi:http://dx.doi.org/10.2139/ssrn.1990811

Harris, D. R., & Woodward, J. A. (1974). Kaiser's little jiffy, Mark Iv for a small computer using basic Fortran IV. Educational and Psychological Measurement, 34(1), 119-120. doi: 10.1177/001316447403400116

Huff, R. A., Keil, M., Kappelman, L., & Prybutok, V. (1997). Validation of the Sitkin-Weingart business risk propensity scale. Management Research News, 20(12), 39-48.

Ibrahim, M. I., & Lim, C. F. (1995). Profile of individual investors in the Klang area. Capital Markets Review, 3, 1-15.

Jackson, S. E., & Dutton, J. E. (1988). Discerning threats and opportunities. Administrative Science Quarterly, 33(3), 370-387.

James, L. R., & Brett, J. M. (1984). Mediators, moderators, and tests for mediation. Journal of Applied Psychology, 69(2), 307-321.

Janis, I. L., & Mann, L. (1977). Decision making: A psychological analysis of conflict, choice, and commitment. New York: Free Press.

Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263-291.

Kerlinger, F. N. (1986). Foundations of behavioral research (3rd ed.). New York: Holt, Reinhart and Winston.

Lai, M.-M., Low, K. L. T., & Lai, M.-L. (2001). Are Malaysian investors rational? Journal of Psychology and Financial Markets, 2(4), 210-215. doi: 10.1207/s15327760jpfm0204_5

MacCrimmon, K. R., & Wehrung, D. A. (1984). The risk in-basket. The Journal of Business, 57(3), 367-387.

MacKinnon, D. P., Warsi, G., & Dwyer, J. H. (1995). A simulation study of mediated effect measures. Multivariate Behavioral Research, 30(1), 41-62. doi: 10.1207/s15327906mbr3001_3

March, J. G., & Shapira, Z. (1987). Managerial perspectives on risk and risk taking. Management Science, 33(11), 1404-1418.

Masters, R. (1989). Study examines investors' risk-taking propensities. Journal of Financial Planning, 2(3), 151.

Mishra, S., & Lalumière, M. L. (2011). Individual differences in risk-propensity: Associations between personality and behavioral measures of risk. Personality and Individual Differences, 50(6), 869-873. doi: 10.1016/j.paid.2010.11.037

Nunnally, J. C. (1978). Psychometric theory (2nd ed.). New York: McGraw-Hill.

Pablo, A. L. (1997). Reconciling predictions of decision making under risk: Insights from a reconceptualized model of risk behaviour. Journal of Managerial Psychology, 12(1), 4-20.

Shiller, R. J. (2008). The subprime solution: How today's global financial crisis happened, and what to do about it. Princeton: Princeton University Press.

Singh, J. V. (1986). Performance, slack, and risk taking in organizational decision making. Academy of Management Journal, 29(3), 562-585. doi: 10.2307/256224

Sitkin, S. B., & Pablo, A. L. (1992). Reconceptualizing the determinants of risk behavior. Academy of Management Review, 17(1), 9-38.

Sitkin, S. B., & Wiengart, L. R. (1995). Determinants of risky decision-making behavior: A test of the mediating role of risk perceptions and propensity. Academy of Management Journal, 38(6), 1573-1592.

Skeel, R. L., Neudecker, J., Pilarski, C., & Pytlak, K. (2007). The utility of personality variables and behaviorally-based measures in the prediction of risk-taking behavior. Personality and Individual Differences, 43(1), 203-214. doi: 10.1016/j.paid.2006.11.025

Staw, B. M., Sandelands, L. E., & Dutton, J. E. (1981). Threat-rigidity effects in organizational behavior: A multilevel analysis. Administrative Science Quarterly, 26, 501-524.

Thaler, R. H., & Johnson, E. J. (1990). Gambling with house money and trying to break even: The effects of prior outcomes on risky choice. Management Science, 36(6), 643-660.

von Neumann, J., & Morgenstern, O. (1944). Theory of games and economic behavior (First ed.). Princeton: Princeton University Press.

Wong, K. F. E. (2005). The role of risk in making decisions under escalation situations. Applied Psychology, 54(4), 584-607. doi: 10.1111/j.1464-0597.2005.00236.x.

Downloads

Published

28-03-2013

Issue

Vol. 10 No. 1 (2013): International Journal of Banking and Finance (IJBF) Vol. 10, No.1, 2013

Section

Articles

How to Cite

Sahul Hamid, F., Rangel, G. J., M. Taib, F., & Thurasamy, R. (2013). The Relationship between Risk Propensity, Risk Perception and Risk-Taking Behaviour in an Emerging Market. International Journal of Banking and Finance, 10(1), 134-146. https://doi.org/10.32890/ijbf2013.10.1.6

Research impact

Harvested 2026-09-07
28 citations, from OpenAlex — the highest of the sources checked

Counts differ between services because each indexes a different body of literature. None of them is the whole picture.

Identifiers DOI 10.32890/ijbf2013.10.1.6 OpenAlex W2973130700

Most read articles by the same author(s)