INVESTMENT EXPERIENCE TO EXPECTED RETURN: A RISK BEHAVIOUR CONSEQUENCES
Fitri Ismiyanti and Putu Anom Mahadwartha

Faculty of Economics and Business, Airlangga University
Faculty of Business and Economics, University of Surabaya

Abstract

Decision-making for financial products requires scientific justification because it involves uncertainty in returns and financial risks. This study aims to examine the effect of investment experience on risk propensity, risk propensity to risk perception, risk perception to return expectation and investment experience to return expectation. Past investment experience acts as an anchor of benchmarks and the basis of individual decision making in investment. Risk propensity and risk perception are risk behaviours that show a persons attitude and behaviour based on previous investment experience. While the return expectation of the financial products reflects the decision of individual investors on the chosen investment opportunities. This study expects to discover how the influence of past investment experience on variable risk propensity; risk propensity to risk perception; and the effect of investment experience on return expectation. Participants are investors and traders of financial instruments in the capital market. This study uses Structural Equation Modelling (AMOS) to test the hypothesis. The result showed that investment experience has positive effect on risk propensity of investors. Higher investment experience will increase the awareness of investors toward risk. Risk propensity has negative effect on risk perception, therefore will support the investors perception toward reducing risk mechanism. Risk perception has positive effect on return expectation, while investment perception has insignificant effect on return expectation. The result showed that investment perception has indirect effect to return expectation through risk perception.

Keywords: investment experience, risk propensity, risk perception, return expectation

Topic: Financial Management and Accounting