1. INTRODUCTION:

The influence of Risk Perception on retail investor decision making is one of the most prominent factor of discussion in the arena of behavioral finance study, which defines the influences of psychological behaviour of investors’ or the financial practitioners and its subsequent effect on financial decision making and the markets (Sewell, 2001). Though it's a matter of debate for the young generation researcher, who says that in financial decision making, risk is an inherent action or the situational factor whose consequences depends on the outcomes of future events (Lopes, 1987). It is the probability of choice among the alternatives which defines the actual returns of an investment amount is always lower than that of expected returns.

This is because all the retail investor or the normal people who are characterized by bounded rationality (Camerer, 1998), where investors perceived risk are misguided the rules of rationality in all time.

Investors’ perception is a cognitive process or a sense of judgment by which individual investors are characterized by their level of expertise and inner sensation that is interpreted in the light of experiences. The concept "Risk perception" defines the way retail investors' view the financial risk based on expert knowledge and experiences. It is a belief, whether it may be rational and irrational. It is a chance of occurrences, the magnitude of an event, the effect of time factor and the emotional attachments. These are some critical factors that encourage risk in financial decision making. The past literature says that the analysis of financial or the investment risk is a fact of each retail investors' who generally take decisions on their own risk tolerance capacity and the level of perception towards risk. Therefore, the risk perception is a benevolent factor which influences the retail investor' decision-making process.

Investors' decision making is a process of determining the behaviour of individual investors, where, when, how and how much investable funds or the capital acquired in the pursuit of making a profit and accruing some value on that investable amount (Sindhu and Kumar, 2014). The study defines the investors' investment decision based on the amount invested in stocks and the extracted factors that influences the investors’risk perception. In the behavioral finance study, it was found that the investors' risk perception could be influenced by information asymmetry, psychological heuristics and the emotional factors. For better understanding of these factors that influences the retail investors' decision making one has to know the answer of some basic questions that how far the retail investors accept the psychology of risk in decision making, what categorical risk they are associated with the investment decision and how it affects the behaviour of individual investors while choosing the best from the alternatives. It is obviously a general principle to know the ultimate answer of those above questions arises in mind of every investors’ while making an investment into a stock, where the risk level is quite higher than that of other investment avenues. To support thesequestions, the eminent researcher Slovic (1996) with the psychometric study of risk perception, Weber (1997) with Perceived risk attitudes: Relating risk perception to risky choice, Ricciardi (2004) with the narrative literature review of risk perception in behavioral finance concern. Furthermore, the past literature suggested that the decision-making behaviour of retail investors' are affected by the emotion and attitude towards risk. At a different point of risk, the perception of investors also differs with the time variances and hence affects the financial behaviour of individual investors. Thus, the study supports the various literature below with the aim to measure the influence of risk perception on equity investor' decision making.

2. REVIEW LITERATURE:

Heimer (1988) conducted a study on psychology of risk by asking two questions that how people perceive risks and how people make choices when there is uncertainty about outcomes. Similarly, Wildavsky and Dake (1995) stated that risk perception and the preferences are predictable for given individual differences in psychological biases and the effects that are related to the knowing judgment and decisions biases.

Weber and Milliman (1997) carried out a study to find out how risk perception of investors and their attitude that is related to choices, which gives guidelines of preferences for perceived risk in both the series of decision making. The authors also tried to find out the factors that affect choices which in turn affects risk perception. Similarly, Rundmo (1997) believes that risk perception affects behavior with respect to potentially hazardous risk source and their consequences and found that the association between risk perception and behavior is caused by the fact that the same predictor variables affect both these factors.

Weber and Hsee (1998) tried to show the cross-cultural differences between the perception and preference of risk which lies at the source of many conflicts and communication failures between individuals or groups and the difference in perception of the risk of risky options have direct implications for their exchange.

Wahlberg and Sjoberg (2000) conducted a study how media influence risk perception that means investors perceive risk is associated with the first piece of information. Furthermore, the author added that media influence the investors' risk perception in the short-run which means the uncertain communication between the investors', that differs from the unintentional risk information which is news and entertainments supply to them.

Hirshleifer (2001) studied the investors' psychology and the asset pricing where the risk involves greater uncertainty about a set of stocks and the lack of accurate feedback about the fundamentals of market information. Morley the author explained the investors' perceived risk based on the level of security prices they choose and their past behavior which we generally called heuristic biases in decision making.

Olsen and Cox (2001) studied the influence of gender perception and their responses on investment risk where social and technological hazards is an extensive evidence which includes the factors as age, education, wealth and experience for determining the responses to investment risk for both genders are different from each other or not and their perception level.

Ricciardi (2004) attempted to explain risk perception as the risk situation on the basis of instinctive and complex decision making, personal knowledge and information acquired from the environment. Morley, Ricciardi (2007) focused on risk perception in behavioral finance which approach to use behaviour of risk to evaluate through laboratory experiment and questionnaire instrument. Furthermore, the author mentioned that the perception influences by risk tolerance where investors feel better with the level of investment.

Cohen et al. (2008) proposed that risk perception depends on past experiences where the author concluded with an observation where loss of an individual visualized more on pessimistic which is behaviour of availability bias.

Riaz et al. (2012) revealed that the importance of psychological factors which affects investment decision making by mediating role of risk perception. The authors also concluded that investors’ behaviour depends on the available information and how much the investors are prone to taking risk while making decisions.

Chandra and Kumar (2012) explained the individual investors' behaviour and stock price and the behaviour affect by various psychological heuristics and biases in Indian stock market. The result showed that the investors make investment decision based on heuristics and the behaviour is highly influenced by representativeness and they do a lot of mental accounting.

Sachse et al. (2012) analyzed risk perception as kind of investment products in which risk is an inherent feature of all investment options where many investors claimed that they are not informed about these risks while making investment decisions. Furthermore, Subash (2012) studied the role played by emotions like fear, greed, and anticipation in investment decisions. Where the author also tried to show how psychological factors affect decision making under uncertainty and concluded that the degree of baseness separated the behavioral pattern of young and experienced investors.

Kramer (2012) evaluated individual investor behaviour where they have given importance mainly for the micro level perspective which affects the well-being of the households and for the macro-level perspective they behave systematically.

3. OBJECTIVE OF THE STUDY:

The objective of the present study is to measure the impact of risk perception on retail investor’ decision making.

Hypothesis framework:

H_a= There is a significant impact of risk perception on retail investors’ decision making.

4. RESEARCH METHODOLOGY OF THE STUDY:

The present study is exploratory cum descriptive in nature. Both secondary and primary sources of data were used for the study. The secondary data were collected for the support of various questions such as what supports the determinant of risk perception. How accurate the retail investors' perception? How do retail investors' perceive the benefit of risk in different situation and how they make an investment decision on risk? That Slovic (1998) who gave some reasonable responses that support the literature on the investors' risk perception and the decision making, which entitled the purposes of the study. The primary data were collected from conducting the retail investors' survey with 437 fully filled responses, through self-designed questionnaire method, the survey was also conducted from the geographical area of Delhi NCR region.

The Questionnaire was divided into two parts. In first part, the questions were directly related to demographics like the gender, age, education, occupation, income, the investment type and the annual investment in to stock market. In the second part, the respondents were asked to give their responses on five-point Likert scales where 1 indicates "Strongly disagree" 2 is "disagree" 3 is "undecided" 4 is "Agree" and 5 indicates " Strongly Agree".

The criteria for the selecting the responses are judgmentally basis, where the presumptions are made on the basis of retail investors experience towards their investment and the decision making. The data were tabulated and analyzed with help of SPSS. The statistical tools were used for analysis include Weighted Average Mean, Standard Deviation, Co-efficient of Variances, Correlation and regression analysis.

5. DATA ANALYSIS AND INTERPRETATION:

5.1. Summary Statistics of Demographic Variables:.

Table.1. Demographic Variables.

Demographic Variables Total Count: 437
Gender.	Count	% age	Mean	S.D.
Male	340	77.8	1.22	.416
Female	97	22.2	1.22	.416
Education.			2.53	.569
Non-graduates	16	3.7
Graduates	179	41.0
PG and More	242	55.4
Age group (in years).			1.81	.685
Up to-30 years	151	34.6
31-40 years	217	49.7
> 40 years	69	15.8
Income-group (In INR).			2.54	1.111
Up to-2 Lakh	89	20.4
2-4 Lakh	124	28.4
4-6 Lakh	144	33.0
6-8 Lakh	57	13.0
> 8 Lakh	23	5.3
Investment (In INR).			1.83	1.154
Up to-50, 000	231	52.9
50,000- 1 Lakh	122	27.9
1 - 1.5 Lakh	43	9.8
1.5- 2 Lakh	10	2.3
> 2 Lakh	31	7.1

Sources: Author computed from survey data.

The above table.1. Describes the demographic characteristics of the respondents with gender, age groups, income-groups and investment in years. In terms of Gender, the mean of 1.22 and S.D. of .416, it was observed that about 77.8 % of the surveyed retail investors were male and remaining 22.2% of the sample respondents were female. This indicates that female participant in investment front is still away fromthe male opponent. Similarly, in the educational background, 55.2 % of respondent were postgraduates and more qualified person followed by 41 %were the graduate holder and 3.2 % were below the graduate level. In case of age, 49.70 % of majority investors were in the age group between 31-40 years of old, as compared to others like 34.6 % in between 30 years (up-to-30 years) and 15.8 % were more than 40 years of old investors'. This indicates that the age group between 31- 40 years of old is more prone towards investing into a stock and takes more risk in decision making.

Annual Income of the Individual retail investors’ also influence the decision making, which means the higher the income level, more will be the opportunity for investment (Modigliani et al., 1959). But the results of the study showed that 33 % of the total sample comprising of 4-6 lakh income group and only 5.3 % i.e. lowest in-case of income more than 8 lakh.

In case of annual Investment and its mean value of 1.83 and standard deviation of 1.154, 52.9 % of the individual investors' whose annual investment is (INR) up to-50,000, followed by others like 27.9 % were (INR) 50,000- 1 Lakh, and more shows on table.1.These indicate the retail investors' investment into stocks are generic in nature, they keep their risk level as the safe side, this means the investors take less risk while investing into stocks (Barber et al., 2011) as the perception matters differently with the uncertainty of markets.

5.2.1. Risk perception of retail investors’:

Investors’ decision is always affected by their perception towards risk, as the literature justified it with a different dimensional study by the different researcher. The assessment of reliability measures of the retail investors’ risk perception is measured by assessing the Alpha Coefficient of 0.71 and the items of retail investors’ decision making is 0.77, which agreed to the internal consistency or the alpha Coefficientby Nunnally (1978). The items that were included in the statements are about the nature of current financial situation of investors (IRp1), I feel stock market is the best place for investment (IRp2), Before investing in a particular stock, I consider information from the company/market/consult experts (IRp3), I am uncomfortable in unfamiliar situation while investing (IRp4), My past history influences the present investment decision (IRp5), I feel uneasy while making investment decision with an uncertain outcome (IRp6), I do not need to seek the advice of financial and investment analyst, Based on my skill and expertise (IRp7), I believe that my personal judgment and experience is enough to predict the market behavior (IRp8), All my investment decisions are based on Quantitative financial methods and investment methods (IRp9) and Though, I am expert of times, my investment decisions are affected by my emotional and psychological factors (IRp10). Thus, the responses were collected from the respondent were based on their different characteristics and the analysis data were presented in table no.2.a.

Table.2.a.Investors’ risk perception.

Statements on risk perception	S.D.	Mean	COV (%)^*	Ranks
IRp1	1.29	3.30	39.11	8
IRp2	1.27	2.92	43.65	10
IRp3	1.07	3.81	28.22	2
IRp4	1.26	3.16	39.96	9
IRp5	1.39	3.37	41.40	7
IRp6	1.37	3.64	37.78	3
IRp7	1.34	3.62	37.00	4
IRp8	1.31	3.46	37.97	6
IRp9	0.78	4.11	19.04	1
IRp10	1.22	3.48	35.25	5

* COV (%) = Co-efficient of Variation in Percentage.

Sources: Computed data from field survey.

Table.2.a. shows that the investors’ risk perception is diversifying with the nature of their portfolio selection which results to reduce the risk in their decision making. The Mean Value highlights the investors’ perception on the factors that influence the level of risk, which was ranked accordingly. The emotion and the psychological biases (i.e. IRp9) having the Mean Value of 4.11 which determined that the retail investors' decision making was highly influenced by their emotional attachments and the psychological anomalies, followed by “I consider information from the company/market/consult experts (IRp3)” which means investors’ were influenced by outsider information with the Mean Value of 3.81.

5.2.2. Retail investors’ decision making:.

Retail investor decision making is a cognitive process by which individuals gather information and create an image of their surrounding reality (Martinez et al., 2012). Individual perception has become an apparent discloser which influences the retail Investors’ investment decision. But it has been said that, while taking an investment decision, investors’ gives more attention or devoted towards current financial situations and value such situation based on the information gathered (Cohen et al., 2011). The summary result for the retail investors' decision making was shown in below:

Table.2.b. Investors’ decision making.

Investors’ decision making	S.D.	Mean	COV (%)*	Ranks
IDm1	1.26	3.16	39.91	8
IDm2	1.39	3.37	41.33	7
IDm3	1.29	3.59	36.13	5
IDm4	1.26	3.66	34.60	2
IDm5	1.37	3.64	37.74	3
IDm6	1.33	3.62	36.96	4
IDm7	1.31	3.46	37.93	6
IDm8	0.78	4.11	19.02	1

* COV (%) = Co-efficient of Variation in Percentage.

Sources: Computed data from field survey.

The above table shows that the investors’ decision making based on the expert advice, which indicates in the surveyed questionnaire with computed results of the highest mean value of 4.11 i.e. “IDm8” in relation to other statement followed by 3.66 (IDm4), to the lowest value of 3.16 (IDm1). It is because in investment decision-making expert advice are characterized by three cognitive processes such as the valuation advice, the assessment of the optional differences and the process of combining the valuation and the optional differences, which results in the actual advice utilization (Meshi et al., 2012). But the variability ratio of investors’ responses in decision making is 41.33 % of items IDm2, which indicates that the retail investors’ risk is highly influenced by the changes in government policies, especially the taxation norms and the investment norms. Similarly, the degree of the coefficient of variance is 39.91 % of IDm1, followed by 37.93 % of IDm7, 37.74 % of IDm5, 36.96 % of IDm6, 36.13% of IDm3, 34.60 % of Idm4 and 19.08 % of IDm8 which is the lowest degree of variability in investors' responses. These indicate that the perceivance of risk in decision making is generally influencedby investors' smartness behaviour, financial stability of an individual person, estimated maturity benefit-risk, past investment experiences and the expert views.So, these are some common causes to which generally effect on human psychology in decision making.

5.2.3. Correlation Coefficient test for investigating the research hypothesis:.

Regarding the research hypothesis, the present study investigated the correlation between the risk perception and the investors’ decision making, the Pearson Correlation coefficient test result shows in table.3. Which indicates the correlation coefficient is in the level of P <.01 and R-valueis equals to 0.817, for the items between risk perception and the investors' decision making. From the results, it can be said that there is a higher degree of correlation among the retail investors' perception and their decision making. Therefore, the research hypothesis (H_a) fails to reject at its place by confirming the alternative at 95 % of confidence level. It means there is a significant relationship between the risk perception and the investor’ decision making, which confirms an existence of a meaningful statistical relationship between the variables.

Table.3. The correlation coefficient of risk perception on Investors’ decision making.

Investors’ decision making	Items	Pearson Correlation	Significant level
Investors’ decision making	Risk perception	0.817^**	.000

** = Significant at 95 % confidence level.

Sources: Author computed from analysis data.

5.2.4. Effect of risk perception on retail investors’ decision making-Regression results:.

The regression analysis shows in table.4, from which it is clear that the retail investors’ are very much influenced by risk perception, as the result shows the significant at 0.01 % level. With extending more the regression model says that the beta coefficient is so much nearer to one which is .974, indicates the higher degree of variability in investors perception towards it dependent variable or in other words there is a highly positive impact of investor' perception on investors decision making.

Table.4. Estimated coefficients of the model.

Independent Variable	Coefficients		Standardized Coefficients	t	Significant Level
Independent Variable	B	Std. Error	Beta	t	Significant Level
Constant	.179	.117	-	1.524	.128
Risk perception	.974	.033	.817	29.540^*	.000

a. Dependent Variable = Investors’ decision making (IDm).

b. R² = .667

c.* = Significant at 0.01 % levels.

Sources: Author computed from analysis data.

Similarly, the R²=0.667, which indicates that 66.7 % of retail investors' decision making is influenced by the risk perception. In model credibility standard, by considering the hypothesis of regression coefficient model which does not equal to zero. The study considered the regression model as:

Investors’ Decision making (IDm) = .179 + .974 (X) ………….. (Regression Model).

Therefore, the study reveals on the basis of the individual role and the share of each of the variables in determining the dependent variable with the standardized rate of variability and a possibility of comparison (Baghani et al., 2016).

6. CONCLUSION:.

From the stated context and the analysis, the present study concluded that in investment decision making, retail investors’ are very much financially conservative and there level of perception reflected by emotion, affective and cognition characteristics. This is because ofthe volatile market and the stock price movement, which turns them to hold the stock with a calculated risk and effect by various psychological heuristics and biases. The foregoing results from the demographic variables in gender category, approximately 78 % of male investors’ as compared to the female investors. As we can say it is an observation from the study and from the past literature where female investors do not feel comfortable with the stock market behavior India, By observing the objective of the study and the hypothesis, it’s also concluded that the causes of impact and their effect are nothing but the biasness in investors' decision making. It is more often highly impact and positively correlates with their risk-taking behaviour and the level of perception. In general, we can say that investors’ are fed-up with time and risk. Similarly, with the awareness of “higher the risk higher the return” concept. At the same time, retail investors’ also fail to understand the diversified portfolio, which works as safety-belt instock investment,which reduces the risk.Similarly, forinvestors’ support, the investment company or the management teams should consider the changing perception of retail investors’ and accordingly took some better steps for general investor’ by launching of new products or new schemes with better returns. This will help in reducing risk burden of an investor and to capture the stock market.

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Received on 22.03.2018 Modified on 15.04.2018

Asian Journal of Management. 2018; 9(2):999-1004.

DOI: 10.5958/2321-5763.2018.00157.9