Big Five Personality Traits, Risk Tolerance, and Investment Decision Behaviour: Examining the Moderating Role of Digital Financial Literacy among Retail Investors in India

Abstract

Investment decision behaviour among retail investors emerges from the interaction of stable personality dispositions, risk preferences, and competency-based moderators. This study investigates the direct effects of Big Five personality traits on investment decision behaviour, the role of risk tolerance as an intermediary mechanism, and the moderating function of digital financial literacy (DFL) within this integrated framework. Grounded in Behavioural Finance Theory, Prospect Theory, the Five-Factor Model of personality, and the Theory of Planned Behaviour, data were collected from 450 active retail investors in Mumbai and Navi Mumbai, India, using a structured 27-item, five-point Likert-scale questionnaire. Analyses included exploratory factor analysis (KMO = 0.842; variance explained = 72.6%), hierarchical multiple regression, and Hayes' PROCESS Macro (Model 1) with 5,000 bootstrapped iterations. Openness to experience (β = 0.28, p < 0.001) and neuroticism (β = −0.21, p < 0.001) emerged as principal personality predictors of investment behaviour. Risk tolerance was a robust proximal determinant (β = 0.43, p < 0.001). Critically, DFL significantly moderated both the risk tolerance–investment pathway (β_int = 0.18, p < 0.001) and the personality–investment pathway (β_int = 0.14, p < 0.01), establishing that digital competency amplifies the behavioural expression of psychological dispositions. The study positions DFL as a theoretically precise boundary condition in the personality–risk–investment nexus, contributing to behavioural finance theory while providing actionable guidance for fintech platforms, regulators, and investor education frameworks in India's digitising capital markets.