FINANCIAL LITERACY ON INVESTMENT PERFORMANCE: THE MEDIATING EFFECT OF BIG-FIVE PERSONALITY TRAITS MODEL

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International Journal of Management (IJM)
Volume 11, Issue 3, March 2020, pp. 782–790, Article ID: IJM_11_03_082
Available online at https://iaeme.com/Home/issue/IJM?Volume=11&Issue=3
ISSN Print: 0976-6502 and ISSN Online: 0976-6510
DOI: https://doi.org/10.17605/OSF.IO/XTS5V
© IAEME Publication Scopus Indexed
FINANCIAL LITERACY ON INVESTMENT
PERFORMANCE: THE MEDIATING EFFECT OF
BIG-FIVE PERSONALITY TRAITS MODEL
Arul Ramanatha Pillai
Assistant Professor & Research Advisor, PG and Research Department of Commerce,
St. Joseph’s College (Autonomous), Affiliated to Bharathidasan University, Tiruchirappalli,
Tamil Nadu, India. ORCID ID: 0000-0001-9877-647X
Arvindh Rajasekar
Ph.D Research Scholar (Full-Time), PG and Research Department of Commerce,
St. Joseph’s College (Autonomous), Affiliated to Bharathidasan University, Tiruchirappalli,
Tamil Nadu, India. ORCID ID: 0000-0002-2040-338X
ABSTRACT
Purpose: In behavioural finance is enclosed by the implementation of human
psychology. It displays the behaviour as cognitive and affective. Investors are motivated
to participate in innovative financial products and financial instruments in the markets.
Decisions of investors have emerged with their awareness of market dynamics and the
psyche. Prediction about investors’ behaviour may difficult task.
Methodology: The researcher used stratified random sampling technique to collect
data in metropolitan cities (Chennai, Coimbatore, Madurai, Salem, and
Tiruchirappalli) in Tamil Nadu State. The three variables are financial literacy is
considered as independent variable, Big Five Personality traits is treated as mediating
variable and investment performance is displayed as dependent variable
Findings: There is a positive and significant relationship between financial literacy
and investment attitude on investments. Investors must focus on their performance
towards investment decisions.
Conclusion: The result shows that the knowledge and attitude of the investors are
highly influence investment decisions. Most of the investors make their decision making
based on their past performances in financial activities
Keywords: Financial Literacy, Personality Traits, Big Five Model, Investment
Performance
Cite this Article: Arul Ramanatha Pillai and Arvindh Rajasekar, Financial Literacy on
Investment Performance: The Mediating Effect of Big-Five Personality Traits Model,
International Journal of Management (IJM), 11 (3), 2020, pp. 782–790.
https://iaeme.com/Home/issue/IJM?Volume=11&Issue=3

Financial Literacy on Investment Performance: The Mediating Effect of Big-Five Personality Traits Model
1. INTRODUCTION
In general, behavioural finance is enclosed by the implementation of human psychology. It
displays the behaviour as cognitive and affective (Hamza & Arif, 2019). According to Statman,
“Some people think that behavioural finance introduced psychology into finance, but
psychology was never out of finance. Although models of behaviour differ, all behaviour is
based on psychology”. In the present scenario, investors are motivated to participate in
innovative financial products and financial instruments in the markets. Decisions of investors
have emerged with their awareness of market dynamics and the psyche. Prediction about
investors’ behavior may difficult task so far (Rehan et al., 2019). Investors make their final
decision with investment securities, alternative opportunities in investments, better outcomes,
and so on. Firstly, an investor needs to know the antecedents of financial markets which means
investors who are financially literate for smooth flow of financial activities and optimal returns
from that particular avenue (Rasool & Ullah, 2019). (Zucchi, 2018) discussed that financial
literacy issues not only rise in developing countries also occur in rich and developed financial
markets encountered financial losses because of improper planning, inability to sort the
uncertainties in the markets. This research examine the impact of financial literacy on
investment performance with the mediation of Big Five Personality traits of the investors.
1.1. Objectives of the Research
• to evaluate the influence of financial literacy on investment performances
• to examine the role of Big Five personality traits in the relationship between financial
literacy and investment performance
• to determine the performance of investors with the support of personality traits and
financial literacy
2. LITERARY REVISED
2.1. Financial Literacy
Financial literacy was introduced in the United States. The term is defined as ‘‘the ability to
use knowledge and skills to manage one’s financial resources effectively for lifetime financial
security’’ (Stolper & Walter, 2017). Financial literacy was conveyed through information and
understandings (Alaaraj & Bakri, 2019). According to Organisation for Economic Co-operation
and Development (OECD) defines financial literacy is not only about knowledge and
understanding the concepts and risk aspects. It also focuses on motivation, confidence, and
skills to implement such knowledge and the ability to make better decisions across a range
(Lusardi, 2019). “Individuals use a combination of skills, resources, and contextual knowledge
to process information and make decisions with knowledge of the financial consequences of
that decision” (Edirisinghe, et al., 2017). Irrational behaviour among investors is mainly due to
the absence of financial knowledge, which has been emphasized mainly in the arena of
behavioural finance (Friedman & Kraus, 2011). It improves the decisions keep the view in both
short-term as well as long-term investments (Mandell, 2008) and it is high among particular
gender, age, qualifications, and income (Lusardi and Mitchell, 2007; 2008). Investors must take
initiative to educate themselves and expand their financial knowledge (Banthia & Dey, 2019).
2.2. Personality Traits: Big Five Model
Personality means “that pattern of characteristic thoughts, feelings, and behaviors” (Phares,
1991). Investor personality is a vital role in defining behaviour of investors and their
performances (Phung & Khuong, 2016). Investment Decision-making is a result of investors’
investment intention and it is highly influenced by investors’ personality and disposition

Arul Ramanatha Pillai and Arvindh Rajasekar
towards risk (Sarwar et al., 2019). Personality traits incorporates main five dimensions viz,
extraversion, agreeableness, conscientious, openness to experience, and neuroticism
(Emotional Stability) (Goldberg, 1990; McCrae & Costa, 1997). Extraversion deals with
gregariousness, assertiveness, excitement seeking, and being person-oriented (John &
Srivastava, 1999), Agreeableness displays vengefulness, mistrust, callousness, and entitlement
(Shiner, 2009), Conscientiousness represents the characteristics of dutiful, goal-oriented, and
plantful (John & Srivastava, 1999), Openness to experience expresses an individual’s creativity,
originality, appreciation and finally intellectual curiosity (John & Srivastava, 1999), and
Neuroticism or emotional stability means severe emotional distress, affective liability,
depression, low frustration, insecure attachments (Lau, 2013). Personality traits plays major
role in financial decisions. Most of the studies shows that the agreeableness, conscientiousness,
and neuroticism has negative impacts. In another hand, extroversion and openness to experience
has positively impact on investment decisions (Nicholson et.al, 2005).
2.3. Investment Performance
In recent scenario, behavioural finance is an integral part of the investment decision. Obviously,
it is highly impacts the investors’ performance (Kengatharan & Kengatharan, 2014). Mostly
the investors performing the financial attitude which is based on their previous performances.
So that the investors’ decision regarding buying or selling is influenced by their performances
(Amir Rafique et al., 2019). Professionals are expected to perform as: “challenging
conventional assumptions of doing business, identifying risks, and seizing opportunities;
integrating sustainability issues into strategy, operations, and reporting; redefining success in
the context of achieving sustainable value creation; establishing appropriate performance goals
and targets; encouraging and rewarding the right behaviors; and ensuring that the necessary
information, analysis, and insights are available to support decision making” (IFAC, 2011). The
investment performance of professionals were evaluated by periodic assessment of financial
activities and comparisons of peer investors (Kallinterakis et.al, 2010).
3. METHODOLOGY
The researcher identify the research gap from the previous study (Hamza & Arif, 2019) and the
present study’ was derived as impact of financial literacy on investment performance of the
investors with mediating effect of big five personality traits.
3.1. Sample
The present study focus on individual investors in Tamil Nadu. The researcher used stratified
random sampling technique to collect data. The survey was conducted in metropolitan cities
(Chennai, Coimbatore, Madurai, Salem, and Tiruchirappalli) in Tamil Nadu State. The survey
instrument was issued to 1000 individual investors. Out of that, 863 were confirmed for the
final analysis.
3.2. Measures
In this research, there is three variables are financial literacy is considered as independent
variable, Big Five Personality traits is treated as mediating variable and investment performance
is displayed as dependent variable. A structured questionnaire were used with the support of
pre-defined measurement scales. The Financial Literacy has 20–items were adopted from
Bongomin et. al (2018), Big Five Personality traits has 44-items were adopted from John, O.
P., & Srivastava, S. (1999), and Investment Performance has 4-items were derived from Le
Phuoc Luong & Doan Thi Thu Ha (2011),

3.3. Conceptual Model and Hypotheses Development
The conceptual model is framed with the support of previous studies. This model shows that
the relationship of financial literacy, Big Five personality traits, and investment performance of
the individual investors.
Figure 1 Conceptual Model of the relationship between Financial Literacy on Investment Performance
3.4. Hypotheses Development
H1: Financial literacy is positively and significantly related to Extraversion
H2: Financial literacy is positively and significantly related to Agreeableness
H3: Financial literacy is positively and significantly related to Conscientiousness
H4: Financial literacy is positively and significantly related to Openness to Experience
H5: Financial literacy is positively and significantly related to Emotional Stability
H6: Extraversion is positively and significantly related to investment performance
H7: Agreeableness is positively and significantly related to investment performance
H8: Conscientiousness is positively and significantly related to investment performance
H9: Openness to Experience is positively and significantly related to investment performance
H10: Emotional Stability is positively and significantly related to investment performance
H11: Personality traits mediates the relationship between financial literacy and investment
performance
4. ANALYSIS AND INTERPRETATION
4.1. Demographics of Respondents
Among 863 respondents, 474 were males (54.9%) and 389 were females (45.1%). In age
category, 235 (27.2%) respondents were between 18 years and 31 years, 388 (45.0%) were
between 32 years and 45 years, 199 (23.1) were between 46 years and 59 years, and 41 (4.8%)
were 60 years and above. In marital status, 257 (29.8%) were married and 606 (70.2%) were
unmarried. With regard to educational qualification, 42 (4.9%) had intermediate (+2) or less,
183 (21.2%) had undergraduate degrees, 448 (51.9%) had postgraduate degrees, and 190
(22.0%) had doctoral degree and others. Under monthly income, 312 (36.2%) had income under
25,000, 286 (33.1%) had income between 25,001 and 50,000, 167 (19.4%) had income under
50,001 and 75,000, 59 (6.8%) had income between 75,001 and 1,00,000 and 39 (4.5%) had

income over 1,00,001. 123 (14.3%) were adventurous investors, 288 (33.4%) were cautious
investors, 378 (43.8%) were balanced investors, and 100 (8.6%) were prudent investors. 240
(27.8%) preferred to invest in the primary markets, 226 (26.2%) preferred to invest in the
secondary markets, and 397 (46.0%) were preferred to invest in the both primary and secondary
markets.
Table 1 Descriptive Statistics (Mean and Standard of Deviation)
Variables Items Alpha Mean Sd
Big Five Personality
Traits
(I see myself as
someone who…...)
Extraversion:
is talkative
is reserved
is full of energy
generates a lot of enthusiasm
tends to be quiet
owns an assertive personality
is shy and inhibited
is outgoing and sociable
Agreeableness:
tends to find fault with others
is helpful and unselfish with others
quarrels with others
is forgiving others
is generally trusting others
can be cold and aloof
is considerate and kind to everyone
is rude to others
likes to cooperate with others
Conscientiousness:
does a thorough job
can be careless
is a reliable worker
is disorganized
is lazy
perseveres until the task is finished
does things efficiently
makes plans and follows through with them
is easily distracted
Emotional Stability:
is depressed and blue
is relaxed and handles stress well
is tensed
worries a lot
is emotionally stable and not easily upset
is moody
remains calm in tense situations
is nervous
Openness to Experience:
is original, comes up with new ideas
is curious about many different things
is ingenious and a deep thinker
has an active imagination
is inventive
values artistic and aesthetic experiences
prefers work that is routine
likes to reflect and play with ideas
has a few artistic interests
is sophisticated in art/ music/ literature
0.94 3.540
3.333
3.491
3.435
3.267
3.231
3.017
3.354
3.152
3.354
3.089
3.371
3.330
3.141
3.349
2.903
3.305
3.580
3.057
3.472
3.132
2.961
3.267
3.301
3.267
3.085
3.234
3.305
3.144
3.157
3.206
2.995
3.157
3.062
3.506
3.395
3.360
3.433
3.375
3.313
3.263
3.315
3.289
3.345
1.128
1.051
0.961
0.968
0.998
0.960
1.019
1.030
1.254
1.059
1.132
1.026
1.020
1.006
1.003
1.186
1.117
1.136
1.146
0.988
1.151
1.158
1.041
1.044
1.049
1.145
1.248
1.001
1.110
1.092
1.043
1.064
1.083
1.138
1.132
0.987
1.002
0.974
1.051
1.016
1.016
1.017
1.087
1.094
Financial Literacy
Knowledge:
In this household, members are Knowledgeable
about financial risks
0.92 3.356 1.105

In this household, members are knowledgeable about
costs associated with financial products/services
In this household, members can easily compute
interest rates
In this household, members can easily understand
simple financial terms
In this household, members have knowledge of key
features of financial products/services
Skills:
Members of my household have the ability to prepare
a personal budget
In this household, members have the ability to decide
what financial services to choose
In this household, members have the ability to
accurately determine benefits from financial
Dealings
In this household, members have the ability to
accurately determine costs from financial
Dealings
In this household, members are capable of evaluating
the different financial products and Services
Attitudes:
Members of this household have good attitude
towards saving money
Members of this household have good attitude
towards spending money responsibly
In this household, members find it easy to save
money
In this household, members enjoy spending money
Members of this household are always organized in
regards to managing money
Behaviour:
In this household, we always read the terms and
conditions on use of financial products/services
In this household, members always look to saving
money
In this household, members always look to spending
money
Members of this household always keep aside some
money for their future use
Members of this household always choose financial
products that suits their needs and conditions
3.382
3.183
3.187
3.143
3.149
3.203
3.213
3.181
3.195
3.344
3.265
3.266
3.037
3.056
3.104
3.224
3.201
3.113
3.197
1.103
1.024
1.098
1.057
1.054
1.077
1.067
1.038
1.138
1.247
1.173
1.118
1.108
1.170
1.189
1.153
1.196
1.181
1.144
Investment
Performance
The rate of return of my recent stock investment
meets my Expectations
My rate of return is less than the average rate of
return of the market
I do not care about the affects of the financial market
on my return, as long as I am able to beat inflation
I feel satisfied with my investment decisions in the
last year (including selling, buying, choosing and
deciding on stock volumes)
0.76 3.151
3.531
3.451
3.358
1.195
1.053
1.021
1.005
Source: Field Data

Table 2 Correlation Analysis
Variable Correlation
Big Five Personality Traits 1 .954** .940**
Financial Literary .954** 1 .917**
Investment Performance .940** .917** 1
Source: Field Data (** Correlation is significant at the 0.01 level)
From the analysis, the descriptive statistics, including means and standard deviation are
displayed in Table 1. The comparison of mean and standard deviation between these constructs.
In this research, the value extracted for three of the variables exceed that significant level of
0.50.
The preliminary analysis of correlation analysis exhibits the significant level at .001. It
shows that the lowest correlation was 0.917 between educational qualification and big five
personality traits and the highest correlation was 0.975 between financial literary and
investment performance. Hence, there is a positive and significant association between the
financial literacy and investment performance of an investors in Metropolitan City.
Table 3 Summary of Hypotheses Development
Hypotheses Result
Financial literacy is positively and significantly related to Extraversion Supported
Financial literacy is positively and significantly related to Agreeableness Supported
Financial literacy is positively and significantly related to Conscientiousness Supported
Financial literacy is positively and significantly related to Openness to
Experience
Supported
Financial literacy is positively and significantly related to Emotional Stability Supported
Extraversion is positively and significantly related to investment performance Supported
Agreeableness is positively and significantly related to investment performance Supported
Conscientiousness is positively and significantly related to investment
performance
Supported
Openness to Experience is positively and significantly related to investment
performance
Supported
Emotional Stability is positively and significantly related to investment
performance
Supported
Personality traits mediates the relationship between financial literacy and
investment performance
Supported
5. RESULT AND DISCUSSION
Most of the investors makes decision with their financial literacy. The investment performance
obviously based on financial literacy. The result parades that there is positive and significant
relationship is exist between financial literacy and investment performance. There is highly
positive impact of extraversion and openness to experience on investment performance. But
there is positive and significant association of agreeableness, conscientiousness and emotional
stability on investment performance. Financial literacy regulates the irrational activities in
investment decision-making and enlightens their performance (Alessie, 2011; Lusard and
Mitchell, 2007; Shakir Ullah, 2015).
Financial literacy and personality traits was one of the most persuasive forces to develop
financial inclusion. Proper knowledge about various financial services prejudiced intensely in
getting access and spreading other services. The expansion of financial education programs
boost-up the financial knowledge of an employees, investors as well as the policymakers. Most
of the organizations are presenting financial literacy programs which is support managers to

enrich their financial literacy. In other perspectives, some organizations also providing
counselling services on financial activities to the investors after evaluating their profile and
investment attitude. Future research may scrutinise the effects of financial literacy on
investment strategy and risk tolerance.
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