Assessing the Role of Risk Tolerance in Shaping Investment Decisions on the Nigerian Exchange: Implications for Individual Investors

This study critically examines the influence of risk tolerance on investment decision-making among individual investors within the Nigerian Exchange (NGX), an emerging market characterized by high volatility and economic uncertainty. Grounded in Prospect Theory and the Theory of Planned Behavior, the research investigates how varying degrees of risk tolerance shape financial behavior in a context where formal financial education is limited and market dynamics are often unpredictable. A quantitative cross-sectional design was employed, and primary data were collected from 423 retail investors across diverse sectors of the NGX using structured questionnaires. Descriptive statistics, Pearson’s correlation, and multiple regression analysis were utilized to analyze the data. Results reveal a statistically significant and strong positive correlation between risk tolerance and investment decision-making (r = 0.671, p < 0.01), with regression analysis confirming that risk tolerance is a robust predictor of investment behavior (? = 0.248, p < 0.001). These findings align with prior empirical studies which assert that investors with higher risk tolerance are more inclined to pursue diversified and return-oriented investment strategies. The study contributes to the growing literature on behavioral finance in Sub-Saharan Africa by emphasizing the psychological underpinnings of investor behavior in under-researched markets. It concludes by advocating for tailored financial literacy and risk management education programs aimed at enhancing investor competence and fostering broader participation in Nigeria’s capital market.