The Association of Financial Knowledge, Attitude, and Behavior with Investment Loss Tolerance: Evidence from Japan

Manaka Yamaguchi, Kota Ogura, Yuzuha Himeno, Asahi Shiiku, Hibiki Nagahama, Honoka Nabeshima, Yu Kuramoto, Mostafa Saidur Rahim Khan () and Yoshihiko Kadoya
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Manaka Yamaguchi: School of Economics, Hiroshima University, 1-2-1 Kagamiyama, Higashihiroshima 739-8525, Japan
Kota Ogura: School of Economics, Hiroshima University, 1-2-1 Kagamiyama, Higashihiroshima 739-8525, Japan
Yuzuha Himeno: School of Economics, Hiroshima University, 1-2-1 Kagamiyama, Higashihiroshima 739-8525, Japan
Asahi Shiiku: School of Economics, Hiroshima University, 1-2-1 Kagamiyama, Higashihiroshima 739-8525, Japan
Hibiki Nagahama: School of Economics, Hiroshima University, 1-2-1 Kagamiyama, Higashihiroshima 739-8525, Japan
Honoka Nabeshima: School of Economics, Hiroshima University, 1-2-1 Kagamiyama, Higashihiroshima 739-8525, Japan
Yu Kuramoto: School of Economics, Hiroshima University, 1-2-1 Kagamiyama, Higashihiroshima 739-8525, Japan
Mostafa Saidur Rahim Khan: School of Economics, Hiroshima University, 1-2-1 Kagamiyama, Higashihiroshima 739-8525, Japan
Yoshihiko Kadoya: School of Economics, Hiroshima University, 1-2-1 Kagamiyama, Higashihiroshima 739-8525, Japan

Risks, 2025, vol. 13, issue 10, 1-17

Abstract: Investment loss tolerance refers to an investor’s willingness to hold financial instruments after experiencing value declines and is considered essential to long-term investment success. Financial literacy, comprising financial knowledge, attitude, and behavior, has been widely identified as a key factor in promoting rational financial decisions. A recent study by Homma et al. suggests that the three components can help prevent panic selling during market crises, such as the COVID-19 pandemic. However, that study relies on binary behavioral indicators within crisis-specific contexts, limiting the generalizability of their findings. To address these gaps, the present study quantitatively measures investment loss tolerance using a generalized hypothetical loss scenario and investigates the associations of financial literacy components. Using a large-scale dataset of 161,223 active investors from one of Japan’s largest online securities firms, we conducted ordered probit and probit regression analyses while controlling for demographic, socioeconomic, and psychological factors. The results reveal that financial knowledge, attitude, and behavior all have statistically significant positive effects on investment loss tolerance. These findings indicate that financial literacy enhances investors’ capacity to withstand losses and discourages premature asset liquidation, even outside crisis-specific contexts. The evidence supports policies aimed at improving financial literacy to foster more resilient investor behavior and promote long-term financial well-being.

Keywords: financial knowledge; financial attitude; financial behavior; investment loss tolerance; financial risk behavior; behavioral finance; investor psychology; financial literacy; ordered probit model (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:13:y:2025:i:10:p:204-:d:1771882

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