EFFECTS OF DEMOGRAPHIC FACTORS AND PERSONALITY TRAITS ON FINANCIAL RISK TOLERANCE: A CASE STUDY OF PAKISTAN (original) (raw)

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.

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 investor personality types with interaction effects of demographics on investment behavior: Evidence from Pakistan

2016

The study consists of three dimensions of investor personality types having psychological biases and investment behavior. The purpose of this study is to empirically examine the relationship between investor personality types and investment behavior in the stock market of Pakistan. Questionnaire based cross sectional survey was conducted to collect the primary data from individual investors in the Islamabad Stock Exchange of Pakistan. Multivariate regression results reveal that investor personality types significantly influence the investment behavior of individuals. This entails that investment adviser and their clients can make suitable investment programs by considering the three dimensions of investor personality types (having cognitive and emotional psychological biases) toward the investment behavior of individual investors. This study captures the attention of investors, to the combine usage of both standard finance and micro behavioral finance that might be guiding principle...

Impact of Personality Traits on Risk Tolerance and Investors' Decision Making

2019

This article investigates the relationships between personality traits, risk tolerance, and investment decisions and highlights the importance of personality traits in determining risk tolerance levels and investment decisions. Personality traits are classified according to the Big Five taxonomy: extroversion, agreeableness, conscientiousness, neuroticism and openness to experience. Primary data was collected from 330 individual investors from Islamabad. Descriptive analysis of the data was run on SPSS, reliability of the constructs was assessed through Confirmatory Factor Analysis (CFA), whereas, Structural Equational Modelling (SEM) was used to conduct hypothesis testing through path analysis. As per the results of CFA, the constructs were found to be reliable. Mediation analysis confirmed that risk tolerance partially mediated the relationship between personality traits and investment decisions. This study and results have theoretical and practical implications for the investors,...

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.

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.

Relationship of the Big Five Personality Traits and Risk Aversion with Investment Intention of Individual Investors

The Journal of Asian Finance, Economics and Business

This empirical research is aimed at testing the relationship of the big five personality traits namely openness to experience, extraversion, consciousness, agreeableness, neuroticism, and risk aversion with the investment intention of individual investors belonging to Balochistan, Pakistan. The primary data is collected through a self-administered questionnaire (a structured form that consists of a series of closed-ended and open-ended questions) from a sample of 397 active individual investors belonging to different districts of the province. The data is empirically analyzed by applying the Partial Least Square (PLS) path modeling technique by using the estimation package available in Smart-PLS. The findings of this study suggest that all the variables are statistically significant with investors' investment intention with risk aversion as the strongest predictor. Moreover, openness to experience, extraversion, consciousness, agreeableness, and risk are significantly and positively related to an investor's investment intention, whereas neuroticism is negatively related to an investor's investment intention. The results extended by this study can be used by financial planners and investment bankers to channelize the available financial resources in diversified portfolios. The results will help financial planners to make available diverse investment alternatives for investors in Balochistan, thus catering to their unique needs. Academia must offer courses on contemporary finance paradigm based on behavioral finance to enable future business graduates to make wise financial decisions.

Impact of Personality Traits on Stock Market Investors with Regard to Risk Tolerance

Journal of Pharmaceutical Negative Results, 2022

The study examines the impact of personality traits on investment decisions based on the big-five model. A total of 100 responses from Cochin were collected using the convenience sampling technique. The five-point Likert scale questionnaire was used alongside the Smart-PLS software for data analysis. The results suggest that personality traits did have a significant effect on investment decisions through agreeableness, conscientiousness and extraversion. However, risk tolerance has a significant negative impact on investment decisions through openness to experience and a significant positive impact through neuroticism. The study helps improve our understanding of investor behaviour by considering the mediating role of big five personality traits on the relationship between risk tolerance and investment decisions. It is recommended that financial institutions should provide investment counselling services to prospective investors using the consumer profile technique.

Determinants of the Risk Tolerance of Individual Investors

International Journal of Economics and Financial Issues, 2015

This study presents new evidence on determinants of risk tolerance of individual investors of Pakistan. The main objective of the research is to evaluate the factors that determine the individuals’ decisions. It is essential to understand the factors of risk tolerance and how to manage these factors to enhance the ability of risk tolerance in making investment decisions and increasing economic growth. The survey instrument used to investigate the determinants of risk tolerance is based on a questionnaire developed by Dow Jones and Company in 1998 that is in Bodie et al. (2007). The questionnaire contains two parts. The first part includes demographic information about and second part includes questions or cases, while univariate analysis is used to calculate the significance of the results. Four hypotheses have been formulated and tested. Relying on the results of the study, the author concludes that men are less risk averse then women, educated investors are more likely to take ris...