IIARD International Institute of Academic Research and Development

Journal of Accounting and Financial Management (JAFM )

E-ISSN 2504-8856
P-ISSN 2695-2211
VOL. 11 NO. 3 2025
DOI: 10.56201/jafm.vol.11.no3.2025.pg17.35

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An Empirical Analysis of Loss Aversion and Investment Decisions: Evidence from Emerging Markets

Oyetade, John Akinbiyi Phd, FCA, Igbalawole, Olomiyete PhD, JohnsonRokosu, Samuel, FCA, Msc

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Abstract

This study examines the impact of loss aversion on investment decisions made by retail investors in Nigeria, taking into account the moderating role of financial knowledge and risk perception. The study contextualizes the results in the sub-Saharan African context and draws comparisons with existing research on South Africa. The study examines how loss aversion, a core concept of prospectus theory, influences investment decisions in an emerging market characterized by unique economic, regulatory, and cultural factors. Quantitative data collected from a sample of Nigerian retail investors is analyzed using regression analysis and ANOVA. Qualitative data collected through interviews complement the quantitative results and provide deeper insights into investors' motivations and experiences. The results confirm the significant impact of loss aversion on investment decisions, with higher loss aversion leading to more conservative investment decisions. Financial knowledge has been shown to play a decisive role in reducing the impact of loss aversion, as financial-savvy investors tend to adopt more aggressive investment behavior. The comparative analysis with South Africa underlines the importance of market-specific factors and suggests that market development, regulatory frameworks and cultural contexts can influence the development of loss aversion. This study contributes to the literature on behavioral finance by providing empirical data from a little-researched emerging market. It provides practical insights to investors, financial advisors, regulators and policy makers in Nigeria and highlights the need for financial knowledge, tailored advice, and robust investor protection mechanisms.

keywords:

Loss aversion, Financial literacy, Risk perception, Investment decisions, Emerging

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