Examining Risk Absorption Capacity as a Mediating Factor in the Relationship between Cognition and Neuroplasticity in Investors in Investment Decision Making

Yadav Devi Prasad Behera, Sudhansu Sekhar Nanda, Shibani Sharma and Tushar Ranjan Sahoo
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Yadav Devi Prasad Behera: Department of Business Management, Central University of Odisha, Koraput 763004, Odisha, India
Sudhansu Sekhar Nanda: Kirloskar Institute of Advanced Management Studies, Harihar 577601, Karnataka, India
Shibani Sharma: Department of Business Administration, Gangadhar Meher University, Sambalpur 768001, Odisha, India
Tushar Ranjan Sahoo: National Institute of Science and Technology, Berhampur 761008, Odisha, India

IJFS, 2022, vol. 10, issue 1, 1-16

Abstract: The encouragement of potential investors who are emotionally broken by past losses and market experiences is crucial to the sustainable flow of funds to the stock market. This can be established by building a knowledge-creating mechanism among investors in their cognitive dimensions, which, in turn, can develop their risk-bearing potential to reach the optimum level so that emotionally broken investors can use their cognitive abilities with their developed risk-absorption potential to further invest in the market in the near future. This study investigates the mediating effect of risk-absorption attitudes in the relationship between cognition and neuroplasticity in investors. Data for the study collected from 506 individual retail investors’ samples using a stratified random sampling technique were analyzed through covariance-based structural equation modeling. The findings of the study indicate that the constructs, viz., the investors’ cognition, risk absorption, and neuroplasticity, are valid and reliable. The structural model also supports the notion that risk absorption mediates the relationship between the investors’ cognition and neuroplasticity. The outcomes of the study are expected to aid in the policy formulation for equity-related financial product marketers, such as depository participants, brokers, mutual funds and SIP institutions, and to help in healing psychological trauma that potential investors suffered from due to losses in the past and overcoming reluctances to further invest in stock markets. The investors’ terrible psychological health developed because of past loss experience can be restored through the concept of neuroplasticity, in which different cognitive dimensions are used, while also enhancing risk absorption in potential investors.

Keywords: risk absorption; risk tolerance; neuroplasticity; cognition; behavioral finance; CB-SEM (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2022
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