Prior perceived losses and investment objectives after stock market crisis: a moderated-mediation model of risk tolerance and loss aversion

Mohammad Tariqul Islam Khan ()
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Mohammad Tariqul Islam Khan: Multimedia University

SN Business & Economics, 2022, vol. 2, issue 7, 1-22

Abstract: Abstract This study explores whether prior perceived losses affect investment objectives via loss aversion as a mediator and whether the indirect effect is moderated by risk tolerance in a moderated-mediation model. Using retail investors who witnessed a market crash in Bangladesh and experienced losses, the model is tested by employing regression analyses and conditional process. The analyses reveal that prior perceived losses indirectly affect investment objectives (earning a higher expected return and building a financial reserve for future expenses) via mediation of loss aversion. Moderated-mediation model shows that for high-risk-tolerant investors, prior perceived losses indirectly affect investors to invest more for achieving a higher expected return objective and less to achieving building a financial reserve for future expenses, via a low level of loss aversion. These suggest that risk-tolerant investors continue to invest to earn a higher expected return even though they experienced prior losses and are loss-averse.

Keywords: Prior perceived losses; Loss aversion; Risk tolerance; Investment objectives; Retail investors; Bangladesh (search for similar items in EconPapers)
JEL-codes: D14 D81 G02 G11 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s43546-022-00259-6

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