Exploring the Financial and Behavioural Drivers of Investment Philosophy: The Path Analysis Approach

Abstract

The study tends to delve into the complex interplay between financial literacy, self-assessed risk tolerance, income, and investment experience in shaping an investor’s philosophy—a multidimensional construct. Data of 554 respondents is collected through a structured questionnaire. Purposive sampling is used to select respondents. Structural path modelling is applied to assess the hypothesized relationships. Results indicate that financial literacy significantly and positively influences investment philosophy, both directly and indirectly through risk assessment and experience. Notably, self-assessed risk tolerance and investment experience proved to be stronger mediators than income in translating knowledge into behaviour. The significant correlation of Investment philosophy with all variables: self-assessed risk tolerance (r = 0.497, p < 0.01), income (r = 0.405, p < 0.01), Experience (r = 0.393, p < 0.01) and financial literacy (r = 0.258, p < 0.01), model fit indices (CFI = 0.99; TLI = 0.97; RMSEA = 0.058; SRMR = 0.020; CMINDF=2.862) along with chi square value (χ²(01, N = 554) = 2.862, p = 0.091 ) depict a good generalized model, confirming the importance of psychological and informational variables in financial decision-making. The findings also underscore the importance of personal reflection on risk and experience along with improved financial literacy. All the factors not only positively influence income but also help individuals to shape a clear and consistent investment philosophy. Such clarity could remove speculation in markets. These findings hold practical relevance for capital market participants, financial consultants, and policymakers in fostering sound investment behaviour in emerging markets.

Keywords: Financial Literacy; Self-Assessed Risk Tolerance; Income Experience; Investment Experience.