What might heightened risk perception lead an investor to do?

Heightened risk perception can significantly impact an investor's decision-making and behavior in the financial markets. When investors perceive increased risk, often due to market volatility, economic downturns, or geopolitical events, they tend to reassess their investment strategies. This cautious approach usually involves making adjustments to their investment portfolios to either mitigate potential losses or capitalize on perceived opportunities.

Adjusting investment portfolios could encompass various actions such as reallocating assets away from high-risk investments, diversifying holdings, or opting for sectors and securities that are perceived as more stable. This proactive response is a rational reaction driven by the desire to manage risk effectively, aligning their investment approach with their risk tolerance and market outlook.

While some investors might choose to stay in the market without changes, invest only in safe assets, or engage solely in short-term trading, these responses are typically more extreme or limited strategies that do not encompass the balanced and comprehensive approach of adjusting an entire portfolio to respond proactively to heightened risk perception. Thus, making informed portfolio adjustments is the most common and prudent response to changing risk dynamics in the market.