The Mediating Role of Risk Perception between Behavioural Finance and Investment Decisions: A Survey-Based PLS-SEM Study of Retail Investors in Bali

Abstract

This study examines the direct relationships among behavioural finance, risk perception, and investment decisions and tests the mediating role of risk perception among retail investors in Bali, Indonesia. A quantitative cross-sectional survey was conducted with 153 retail investors selected through purposive sampling based on predefined eligibility criteria. Data were analysed using Partial Least Squares Structural Equation Modeling (PLS-SEM). Following measurement-model assessment, indicators with inadequate loadings were removed, resulting in a reduced seven-indicator measurement model comprising overconfidence and investor awareness for behavioural finance; liquidity, regulatory, and systemic risk for risk perception; and decision satisfaction and readiness for investment decisions. Using 5,000 bootstrap resamples, behavioural finance was positively associated with risk perception (beta = 0.538, p < 0.001, 95% CI [0.410, 0.655]) and investment decisions (beta = 0.633, p < 0.001, 95% CI [0.513, 0.743]). Risk perception was not significantly associated with investment decisions (beta = 0.048, p = 0.525, 95% CI [-0.099, 0.196]). The specific indirect effect through risk perception was also not significant (beta = 0.026, p = 0.539, 95% bootstrap CI [-0.053, 0.113]), providing no evidence of mediation in the final model. The findings indicate that the retained behavioural-finance construct is directly associated with investment decisions, whereas risk perception does not statistically transmit this relationship. The study contributes to behavioural investment research by clarifying the empirical role of risk perception within the tested model of Indonesian retail investors while recognising the implications of measurement-model reduction.