An exploratory investigation of the relation between risk tolerance scores and demographic characteristics (original) (raw)
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1997
This study was designed to determine what variables would differentiate between levels of investor risk tolerance and classify individuals into risk tolerance categories. A model was developed and empirically tested using data from the 1992 Survey of Consumer Finances. Multiple discriminant analysis indicated that the educational level of respondents was the most significant differentiating and classifying factor. Gender, self-employment status, and income also were found to be effective in discriminating among levels of risk tolerance. Demographic characteristic provide only a starting point in accessing investor risk tolerance. More research is needed to explain variations in risk tolerance.
Exploring the Effect of Demographic and Other Variables on Investor Risk Tolerance Propensity
Understanding financial risk tolerance and determining an individual’s willingness and capacity to take on risk is an essential part of financial and indeed economic planning. Increasingly planners draw on the behavioral economics literature. Determining a client’s financial risk tolerance is a crucial part of the investment management process. In assessing the risk profile of a system or individual, it is generally seen that there are four main inputs (1) goals, (2) time horizon (3) financial stability, and (4) risk tolerance (Garman & Forgue, 1997). The final input, risk tolerance, is one of a more subjective than objective nature and thus is much more difficult to measure. Although countless attempts have been made to come up with a more precise quantitative measure for this final input, there is no one size fits all approach to measuring risk tolerance and such it has attracted a high level of interest among a range of schools of thought worldwide and merits further insight and investigation.
1997
This study was designed to determine whether the variables gender, age, marital status, occupation, self-employment, income, race, and education could be used individually or in combination to both differentiate among levels of investor risk tolerance and classify individuals into risk-tolerance categories. The Leimberg, Satinsky, LeClair, and Doyle (1993) financial management model was used as the theoretical basis for this study. The model explains the process of how investment managers effectively develop plans to allocate a client's scarce investment resources to meet financial objectives.
Impact of Demographic Factors on Investment Risk Tolerance
The study aims to investigate the impact of demographic factors on investment risk tolerance. The demographic variables taken include age, gender, marital status, income, work experience, and education. The primary data has been collected through questionnaires by adopting a deductive approach. The sample size consists of 106 respondents using convenience sampling. SPSS is used for data analysis and person correlation, and linear regression is applied to analyze the relationship between the variables. It was identified that gender, income, and education are positively related to risk tolerance level, whereas age, marital status, and work experience are negatively related to risk tolerance. Gender is found to have a significant positive impact on risk tolerance level, whereas marital status has been found to have a negative and significant relationship with the risk tolerance level of individuals. These findings will be helpful for the investors to improve their investment decision-making skills. The further risk tolerance of investors may depend on the behavioral factors too.
Impact of Demographic Variables and Risk Tolerance on Investment Decisions: An Empirical Analysis
Microeconomics: Decision-Making under Risk & Uncertainty eJournal, 2016
This empirical study explores the investment pattern and financial decision making of individuals and their risk tolerance. The study has adopted financial risk tolerance scale proposed by Grable and Lytton to measure the different dimensions of financial risk. Kendall’s W test is used to ascertain the preferred source of investment of individuals. Chi-square test is used to determine the demographic variables and their relationship with investment pattern. The study reveals that gender has an impact on the investment pattern and decision making of respondents.
Lahore Journal of Business
Behavioral finance focuses on psychological factors—such as risk perception and portfolio management—that play a crucial role in investors’ financial decisionmaking. This study investigates the effect of risk tolerance and demographic characteristics on risk perception and portfolio management, which, in turn, affect investors’ decisions. Applying structural equation modeling to data collected from a sample of 120 respondents, we find a significant and positive relationship between risk perception and risk tolerance. Similarly, certain demographic characteristics, such as age and education, have a significant and positive relationship with risk perception while others, such as income and gender, have a significant but negative relationship with risk perception. Risk tolerance has a significant but negative relationship with portfolio management. Age, education, and income have a significant but negative relationship with portfolio management, while gender has a significant and posit...
Impact of Risk Tolerance and Demographic Factors on Financial Investment Decision
International Journal of Financial Management, 2018
Risk tolerance is popularly used in the personal financial planning industry to understand an investor's attitude towards risk. In the twenty-first century, it is very important for the various investment firms, fund managers, financial planners to understand financial investment decisions of an investor for developing a strategy for the sale of their investment products in market. However, financial decisions of an individual not only depend on financial risk-tolerance level, but also upon different demographic factors. Thus, this study is undertaken to develop a model that helps in understanding impact of risk tolerance and demographic factors jointly on investment decision; especially, a decision related to level of investment. Also, investor may be having higher risk tolerance for the calculative investment but may be having lover risk tolerance in speculative investment. So, based on extensive literature support, this research has tried to propose a model for understanding the impact of investment risk tolerance, capital risk tolerance, speculative risk tolerance, and six important demographic variables jointly on investment decision. Thus, this study would be helpful to investment firms in understanding impact of risk tolerances and demographic variables jointly on level of investment of investors, which can be used for designing a strategy or investment product to offer to the investors with different levels of financial risk tolerance and different demographic profiles.
Financial risk attitudes, demographic profiles, and behavioural traits: Do they interrelate?
Asian Journal of Accounting Perspectives, 2021
The paper addressed two objectives: examining the differences in behavioural traits with regard to risk attitudes, and explore the differences in financial risk attitudes with regard to demographic profiles of Malaysian investors. Design/ Methodology/ Approach: Using the t-test and one-way analysis of variance (ANOVA), this paper investigates how differences in behavioural trait bias among 241 master of business administration students in Malaysia affect their financial risk attitudes. Research finding: First, we find that the financial risk takers have higher levels of overconfidence, maximization, happiness, and trust than the risk-averse respondents. Second, in terms of demographics, we find that the following take significantly higher risks: men versus women, singles versus those who are married, and, those with lower income and less work experience. Besides, in terms of race, the Chinese are the greatest financial risk takers. Theoretical contribution/ Originality: Both the behavioural traits and financial risk attitudes are new for a multicultural background market like Malaysia. Reflections on the findings suggest that the financial planners need to take cognisance of such relationships, tendencies and risk preferences so as to understand their client inclination and provide appropriate advice to their investor clients. Research limitation/ Implication: Categories under the research design and sample selection can be further extended by considering more advanced research approach and a bigger size of sample respondents.
Role of Gender in Predicting Determinant of Financial Risk Tolerance
Sustainability
This research was conducted to determine whether the determinants of financial risk tolerance varied by gender or whether the same factors influenced the risk-taking capacities of both genders. This study utilised personality types (Type-A and Type-B), financial literacy, and six demographic parameters, including marital status, age, education, income, occupation, and the number of dependents, as independent variables, and gender as a dividing variable. In order to conduct this study, information was gathered from 671 investors. The financial risk tolerance of male investors was determined by six out of eight independent factors (personality type, financial literacy, marital status, income, occupation, and the number of dependents). However, just four factors (personality type, financial literacy, marital status, and income) have a substantial impact on the financial risk tolerance of female investors.