How does Behavioural Biases and Emotional Intelligence Influence on Individual Investment Decisions: Mediating Role of Risk Tolerance

In the landscape of investment decision-making, the role of behavioral biases and emotional intelligence has garnered substantial attention. However, an overlooked facet in the extant literature pertains to the mediating influence of risk tolerance in this intricate relationship. This study endeavors to address this gap by investigating the interplay between behavioral biases, emotional intelligence, and investment decisions among individual investors in the Colombo Stock Exchange. The study population comprises both local and foreign investors, totaling 706,735. Employing a convenience sampling technique, a sample of 384 respondents was derived, and their insights were gathered through a 5-point Likert scale online survey. The analytical framework involved refining 359 responses for comprehensive analysis. Statistical analysis was conducted using SPSS and Smart PLS Version 4, employing the Partial Least Squares Structural Equation Modeling (PLS-SEM) technique. The results reveal a significant and positive impact of both behavioral biases and emotional intelligence on investment decision-making. Moreover, the study denotes a noteworthy positive influence of risk tolerance on investment decisions. Crucially, the mediation role of risk tolerance is substantiated, acting as a partial mediator between the relationship of behavioral biases and investment decision-making, as well as between emotional intelligence and investment decision-making. The implications of these findings shed light on the complex dynamics governing investment choices and underscore the significance of considering risk tolerance as a pivotal factor in understanding investor behavior. Consequently, this study contributes not only to the theoretical realm but also presents practical recommendations for investors, financial professionals, and market regulators alike.