The lack of retail participation in the Malaysian stock market in recent time poses a very interesting question: what are reasons that are making the retail investors to shy away from the market now given the fact that they accounted for about 60 percent of the volume in the market during the 90?s? In light of this, the present study examines the risk taking behavior of retail investors in the Malaysian stock market using the theoretical framework proposed by Sitkin and Pablo (1992) in order to see if risk aversion is a factor that is causing the retail investors to participate less in the market. In assessing their risk taking behavior, situational characteristics, problem characteristics and also individual characteristics are looked into. The findings show that risk preference and inertia had significant effect on risk propensity whereas problem domain familiarity had significant effect on risk perception. This study failed to confirm the mediating role of risk propensity and risk perception. Overall, inertia, less risk outcome history and risk propensity have been found to have significant effect on the risk taking behavior of retail investors in the Malaysian stock market.