Financial Anxiety as a Mediator between Risk Perception and Investment Decisions among Individual Investors in Pakistan amid Economic Turmoil

Abstract

Macroeconomic stress amplifies retail investors’ uncertainty and emotions. This paper tests whether financial anxiety mediates the association between risk perception and investment decisions in Pakistan. Using a synthetic survey dataset (N = 400) designed to mirror the country’s demographic mix, we measure risk perception, financial anxiety, and willingness to invest in risky assets with multi-item Likert scales. Reliability, correlation and OLS regressions with HC3 robust standard errors are reported alongside a nonparametric bootstrap (5,000 resamples) of the indirect effect. Results show that risk perception increases financial anxiety and decreases willingness to invest; financial anxiety partly transmits the impact of risk perception on investment behavior (indirect effect significant at 95% CI). Findings align with the risk‑as‑feelings framework and recent evidence on behavioral influences during heightened economic policy uncertainty. Policy and practice implications for investor education, disclosure, and market communication in Pakistan are discussed.