The Mediating Role of Risk Tolerance in the Relationship between Emotional Intelligence and Investment Decisions.

Abstract

Investor behavior in emerging markets such as Sri Lanka is shaped by policy changes, economic reforms, and socio-cultural factors. While emotional intelligence has been recognized as an important determinant of investment decision-making, limited research has examined the role of psychological factors particularly risk tolerance in mediating this relationship. Addressing this gap, this study investigates how emotional intelligence influences investment decisions, with risk tolerance acting as a mediator among individual investors in the Colombo Stock Exchange. A structured online survey using a 5-point Likert scale gathered responses from 359 equity investors selected through convenience sampling method. Using Partial Least Squares Structural Equation Modeling (PLS-SEM), the study finds that emotional intelligence significantly enhances investment decision-making, and risk tolerance has a strong positive effect on investment choices. Further, results confirm that risk tolerance mediates the relationship between emotional intelligence and investment decisions. These findings advance behavioral finance literature by highlighting risk tolerance as a key psychological mechanism linking emotional intelligence to investment behavior. The study provides practical implications for investors, advisors, and policymakers, emphasizing the importance of emotional awareness and risk-handling capacity in investment performance.