A qualitative phenomenological exploration of social mood and investors’ risk tolerance in an emerging economy

Abstract

Purpose The authors design a theoretical perspective that explores how different phases of social mood influence financial risk tolerance (FRT) among investors. Risk is involved in almost all financial decision-making. For a better understanding of risk tolerance behavior, the role played by social mood cannot be ignored. This study aims to explore the linkage between social mood and FRT of investors in Pakistan. Design/methodology/approach Using qualitative phenomenology as the guiding framework, 22 interviews were conducted to have a deeper understanding of the lived experiences of investors with at least 10 years of investment experience. Thematic analysis was done to analyze data. Audio-recording, bracketing, triangulation and member checking were done to ensure validity and reliability. Findings A theoretical model is developed using the six themes identified through thematic analysis. This model presents an in-depth analysis of the determinants of social mood, its multiple phases and its impact on risk tolerance behavior. Findings reveal that the level of financial literacy, experience and purpose of investment moderate the effect of social mood on FRT. Practical implications Investors can manage risk and increase their profits by controlling the effects of social mood. They can benefit from the market situation by taking more risk when the market is extremely low. The advisors can frame their advice in the light of the model. Originality/value According to the authors’ knowledge, this is the first study that explores investors’ risk tolerance in response to variations in social mood in the context of an emerging economy. The paper has contributed conceptually and methodologically. It uses phenomenology as the method and develops a theoretical model that describes how different types of investors adjust their risk tolerance in response to changes in their social mood.

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“…Moreover, the intersection of social connectedness with factors such as financial decision-making (Asad et al, 2021), musical engagement (Palazzi et al, 2018), and weather conditions (Bassi et al, 2013) opens up intriguing avenues for interdisciplinary research. Exploring how these and other environmental and contextual influences interact with social connectedness and psychological outcomes could yield valuable insights into the complex web of factors that shape human behavior and well-being.…”

“…By integrating findings from diverse studies, including those focused on specific populations such as young adult cancer survivors (Fox, 2023), American Indian youth (Haruyama et al, 2023), and sexually active adolescents (Stone et al, 2014), the article aims to provide a nuanced understanding of these constructs. The inclusion of perspectives from various disciplines, ranging from psychology to financial markets (Asad et al, 2021), further enriches the analysis.…”

A bibliometric analysis VOSviewer of publication on financial literacy and investment decision

“…However, other researchers chose to focus on the scope of the study with research samples on university students (Ammer and Aldhyani, 2022;Weixiang et al 2022;Soepriyanto and Limijaya, 2022;Thakur and Mago, 2021). Within the scope of studies focusing on Investors (Al-Tamimi and Kalli, 2009;Hatch et al 2018;Aggarwal, 2019;Cupák et al 2021;Seraj et al 2022;Asad et al 2022). examines Investor Decisions in investing in risky assets with a focus on the scope of investment awareness enabling people to make sound and effective decisions in investment activities.…”