Big Five Personality Traits and Investment Decision-Making: The Mediating Role of Behavioural Biases

Abstract

Beyond conventional financial concerns, psychological and behavioral factors frequently impact investment decisions. Understanding how investor behavior is impacted by personality factors is becoming increasingly important in order to explain financial market decision-making tendencies. This study looks at the Big Five Personality Traits and how they affect investing decision-making and behavioral finance features. The study specifically investigates the function of behavioral finance elements as a higher-order construct that includes mental accounting biases, loss aversion, herding, overconfidence, and anchoring.The study uses a quantitative research design and uses a structured questionnaire to gather primary data from 200 individual investors. Using Partial Least Squares Structural Equation Modeling (PLS-SEM) via SmartPLS, the suggested model was examined. The findings show that personality qualities have a major impact on behavioral finance aspects, with extraversion showing the greatest influence of all the personality dimensions. Additionally, it was discovered that behavioral finance aspects significantly improved investment decision-making. The measurement and structural model evaluations supported the robustness of the suggested framework by confirming acceptable validity, reliability, and model fit.The results demonstrate the significance of investor psychology in financial decision-making and offer empirical proof that behavioral finance aspects are a key mechanism by which personality traits impact investment behavior. The study contributes to the body of literature on behavioral finance and offers useful information to investors, financial advisors, and regulators who wish to gain a deeper understanding of how investors make decisions by integrating personality traits and behavioral biases into a comprehensive framework.