Exploring the relationship between investment choices, cognitive abilities risk attitudes and financial literacy

Abstract

Purpose

The main purpose of this study is to investigate the investment choices' relationship with cognitive abilities, risk aversion, risky investment intentions, subjective financial literacy and objective financial literacy.

Design/methodology/approach

To examine the relationship, two investment choices were given to 256 subjects from Pakistan. Questionnaire had total 20 questions for measuring five variables. To review this nexus, discriminant analysis was used as to explore the depth of the nexus that is the ability of the variables to predict the investment choices.

Findings

This study establishes the findings that Investment choices are guided by risk aversion, risky investment intentions, financial literacy (subjective and objective) and cognitive abilities. The risk aversion has negative relation to investment choices and other variables depict positive relationship to with investment choices.

Practical implications

This study provides a new and useful understanding into the existing literature on investment choices. The results are significant as the cognitive abilities show a positive contribution to the investment choices. This is point of significance as the portfolio managers and advisors would get help in regards of advising investments as they are aware what factors impact the investment choices.

Originality/value

This study is novel in its nature to evaluate investment choices using the cognitive ability alongside risk attitudes and financial literacy.

Citation

Mushafiq, M., Khalid, S., Sohail, M.K. and Sehar, T. (2023), "Exploring the relationship between investment choices, cognitive abilities risk attitudes and financial literacy", Journal of Economic and Administrative Sciences, Vol. 39 No. 4, pp. 1122-1136. https://doi.org/10.1108/JEAS-07-2021-0130