Impact of Risk Tolerance on Investment Decisions in the Nepalese Stock Market

Abstract

Abstract: This study aims to clarify the effect of risk tolerance on investment decisions in Nepalese capital market (2025) with secondary data sources (NEPSE annual report and annual report of SEBON). Two techniques were used to analyze the investors' behaviors and the market performance. This means that it could be inferred that the increasing risk appetite of the investors could be correlated with the transaction volume. There are some volatile markets that affected the investment allocation greatly and are impacted, like the hydropower (beta = 0.78) and development banks (beta = 0.65 and p < 0.05); the investors demonstrate preference for short-term gains due to market uncertainty. The result of ANOVA reveals that the values of the NEPSE index varied significantly from one fiscal year to another and the volatility of the index makes it a major consideration in the change of the investor's sentiment (F = 12.45, P < 0.01). The investor confidence is a measurable outcome of the risk tolerance as revealed by trend regression, which indicated that there is a significant prediction (β=0.84, R²=0.71, p<0.01) of the market capitalization increase by the values of the closing of the index. This study differs from the past studies since it considers the entire concept, including the aspects of turnover, sectoral allocation, volatility measures and capitalization's development. At the overall level the results suggest convergent features with international trends in the investment landscape and also peculiar attributes of investment in Nepal, such as investment profiles in volatile industries, etc. The findings based upon this investor's observation prove the importance of financial literacy in their individual capital investment, risk management and success of capital markets in Nepal through the diversification approach, which involves the stakeholders in the Nepalese capital market, including investors, regulators and policymakers...