Psychological traits and investment decisions: the mediation mechanism of financial management behavior – evidence from the Tanzanian stock market

Abstract

Purpose – The purpose of the paper is to examine the financial management behavior (FMB) mediation mechanism in self-control, optimism, deliberative thinking and investment decisions in the Tanzanian stock market. Design/methodology/approach – A sample of 268 individual investors in the Tanzanian stock market was obtained through questionnaires. The data were analyzed using structural equation modeling. Findings – The findings show that self-control, optimism and deliberative thinking are significantly and positively related to FMB and investment decisions. The findings also confirmed the mediating role of FMB in the influence of self-control, optimism and deliberative thinking on investment decisions among Tanzanian individual investors. These findings imply that people with good self-control, optimistic and deliberative thinking are more likely to save money, have better FMB and prefer to make investment decisions. Research limitations/implications – The study deals with individual investors. Future research could examine the effects of psychological traits on investment decisions by adding or modifying the items of particular constructs and studying institutional investors. Practical implications – Individual investors can use the information to study and evaluate their financial behavior and stock investment decisions. This research can be used by security firms to better understand investor behavior, forecast future market trends and advice investors. Individual investors require psychological features to manage their behavior in various aspects, ranging from affective behavior to cognition, which are relevant for investing decisions. Originality/value – Few studies have examined the influence of self-control, optimism and deliberative thinking on the investment decisions of individual investors. The unique empirical analysis developed in this paper is that it examines the mediation mechanisms of FMB with respect to self-control, optimism and deliberative thinking and investment decisions among individual investors in the Tanzanian stock market.

Keywords

• Financial management behavior
• Psychological traits
• Investment decision
• Individual investors