Linking ESG-Investing Consciousness, Behavioral Biases, and Risk-Perception: Scale Validation with Specifics of Indian Retail Investors

Abstract

The research focuses on the calibration and measurement of the relationship between the selected behavioural biases and the risk perceptions of Indian retail investors, as well as its ultimate implications on equity investment decisions. Further, it examines the association of the factors to non-financial determinants such as ESG investing consciousness. The research leveraged a structured questionnaire for data collection across 438 samples. EFA for factor-extraction and assessing dimensional validity; CFA for understanding the factor structure, the validity & reliability of the latent variables; and AMOS-based SEM for the establishment of path analysis and structural causal relationships amongst the variables are used for the study. The study confirms the significant impact of risk perception on equity investment decisions and establishes a significant link between the selected biases for the study and the perceived risk. The findings also indicate a statistically significant relationship between ESG consciousness and the risk perception of investors. Further, there is confirmation of a statistically significant negative moderation effect of ESG consciousness on the relationship between the selected biases and investors' perceived risk, indicating that higher ESG consciousness weakens the positive relationship between investors' perceived biases and risk perception.