How Investors Interpret Risk in the Pakistan Stock Exchange: Lived Experiences of Retail Traders

Abstract

This study examines how retail investors in the Pakistan Stock Exchange (PSX) understand and experience risk, with particular emphasis on their subjective interpretations rather than objective or quantitative measures. The focus is on capturing investors’ lived experiences, perceptions, and meaning-making processes through which risk is constructed and negotiated in everyday trading decisions. A qualitative phenomenological design was employed, using semi-structured interviews with twelve active retail traders to elicit nuanced accounts of their investment experiences. The findings reveal that risk is perceived as a complex interplay of market volatility, political uncertainty, liquidity constraints, and information asymmetry. Participants expressed strong concerns regarding insider advantages and weak regulatory enforcement, which heightened their sense of vulnerability. Behavioural factors such as loss aversion, overconfidence, and herding were found to exert a significant influence on investment decisions, while social networks and collective narratives further shaped perceptions of uncertainty. Emotional and cultural framing also played a central role, as many traders relied on tacit knowledge, peer advice, and faith-based rationalisations when navigating risk. Despite these systemic challenges, investors adopted adaptive strategies such as portfolio diversification, stop-loss mechanisms, and experiential learning to cope with market uncertainty. Overall, this study contributes to the growing body of behavioural finance research in emerging economies by illuminating the lived dimensions of risk and underscoring the need for greater transparency, stronger regulatory frameworks, and targeted investor education in Pakistan’s equity market.