Cross-Cultural Differences in the Perception of Portfolio Risk (original) (raw)
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The present study assessed cross-cultural differences in the perception of financial risks. Students at large universities in Hong Kong, Taiwan, the Netherlands, and the U.S., as well as a group of Taiwanese security analysts rated the riskiness of a set of monetary lotteries. Risk judgments differed with nationality, but not with occupation (students vs. security analysts) and were modeled by the Conjoint Expected Risk (CER) model?') Consistent with cultural differences in country uncertainty avoidance,(2) CER model parameters of respondents from the two Western countries differed from those of respondents from the two countries with Chinese cultural roots: The risk judgments of respondents from Hong Kong and Taiwan were more sensitive to the magnitude of potential losses and less mitigated by the probability of positive outcomes.
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Risk serves as an important aspect that can change the decision making of individuals, especially if it is related to investment decision making. The effects of risk on investment decision making have been extensively discussed in the literature but little of it assessed the dominance of various risk-related factors in investment decision making by individuals. In order to make up for this lack, this research studies the impact of risk avoidance, uncertainty avoidance and perceived risk on the investment intentions of individual investors in Pakistan and relate it to Hofstede’s cultural dimension. The data was collected from individual investors and after screening, a sample of 548 was found useable for further analysis. Using SEM-PLS, it was found that risk avoidance and uncertainty avoidance significantly influence the investment intention of individual investors. On the other hand perceived risk does not influence the investment intentions of individual investors. In the evalua...
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In this article, we describe a multistudy project designed to explain observed cross-national differences in risk taking between respondents from the People’s Republic of China and the United States. Using this example, we develop the following recommendations for cross-cultural investigations. First, like all psychological research, cross-cultural studies should be model based. Investigators should commit themselves to a model of the behavior under study that explicitly specifies possible causal constructs or variables hypothesized to influence the behavior, as well as the relationship between those variables, and allows for individual, group, or cultural differences in the value of these variables or in the relationship between them. This moves the focus from a simple demonstration of cross-national differences toward a prediction of the behavior, including its cross-national variation. Ideally, the causal construct hypothesized and shown to differ between cultures should be demonstrated to serve as a moderator or a mediator between culture and observed behavioral differences. Second, investigators should look for converging evidence for hypothesized cultural effects on behavior by looking at multiple dependent variables and using multiple methodological approaches. Thus, the data collection that will allow for the establishment of conclusive causal connections between a cultural variable and some target behavior can be compared with the creation of a mosaic.
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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.
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Are human beings always rational? Do they always use the maximum of their cognitive capacities when making important decisions regarding their finances and investment options? Do emotions and biases interfere with one’s capacity of making investment decisions? Are people’s risk tolerance influenced by their psychological properties? These are only a few of the questions that the subject of behavioral finance addresses. Taking the principles from sociology, psychology, and finances, behavioral finance has contributed to the understanding that humans are irrational and their investment decisions are influenced by various behavioral biases and emotions. The present paper aims to understand the specific influences of gender, personality traits, and cultural factors on the investment decisions of people through a review of existing research literature. The findings imply that rather than considering the factors as brought to the forefront by behavioral finance like gender, personality, c...
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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...
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The Study of risk perception and its impact on investors' behavior is well established in the literature of behavioral finance. Plentiful studies have been conducted to explore, investigate and measure this link. However, very few of them attempt to find this link in the context of portfolio management. Therefore, the purpose of this study is to test empirically the impact of investors' perception of risk on portfolio management in the Kingdom of Bahrain. This study draws on 151 questionnaire surveys of investors in Bahrain. Participants were asked to assess one randomly selected portfolio type (from P (A) to P (F)) on a questionnaire consisting of 33 determents of the risk perception which were selected from the surveys of previous studies. Subsequently, a model of determinants of perceived risk and portfolio management was developed and tested. Furthermore, the data were analyzed using linear stepwise regression and factor analysis with varimax rotation. Suitability of the data was checked by calculating the Kaiser-Meyer-Olkin (KMO) value and analyzing the anti-image-covariance-matrix. The results reveal that perceived portfolio risk is not only affected by quantitative aspects of potential losses and gains but also qualitative manifestations evidence to be pertinent. Worry & anxiety, liquidity; and the level of confidence in the economy and/or the stock market load high on the factor representing the perceived risk by investors which is associated with portfolio management in the Kingdom of Bahrain. KEY WORDS: Portfolio Management-Risk Perception-Behavioral Finance-Investment Decisions-Kingdom of Bahrain. Several studies show behavior finance perspective on individual investor, such as Slovic (1986), Lopes(1987), Schubertl et al. (1999), and Abdeldayem and Assran (2015). Those authors argue that individual investor would demonstrate different risk attitude when facing alternative investments. While, the question of what is the impact of investors' perception of risk on portfolio management remains unanswered.