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Financial risk tolerance revisited: The development of a risk assessment instrument
Abstract
This paper explores conceptual, methodological, and empirical issues related to the development of a financial risk-tolerance assessment instrument. Financial risk tolerance is a significant factor in a number of household financial decisions, yet few recognized, valid, and reliable methods of assessment are available for use by financial service providers and educators. Empirical results from a multistage development of a 13-item risk assessment instrument are discussed. The multidimensional instrument is presented as the foundation for the development of a more widely used and accepted index. Future use by practitioners and researchers is encouraged to further validate the usefulness of the instrument.JEL classification:D81
... In Panel B, we use the 13-item psychometric questionnaire proposed by Grable and Lytton (1999) to capture an investor's subjective risk tolerance. The Cronbach's alpha coefficient in our sample is 0.63, suggesting an adequate reliability. ...
... The Cronbach's alpha coefficient in our sample is 0.63, suggesting an adequate reliability. Similar to Grable and Lytton (1999), we aggregate the scores for each investor respondent and use it as the dependent variable, denoted as ATR. The results are consistent with Panel A in that DECIDER is highly significant and positively associated with investors' risk attitude. ...
... In this section, we investigate if investors' subjective risk tolerance explains their objective risk-taking behavior and whether the decision-making power interacts with the subjective risk tolerance in affecting the investor's objective risk-taking behavior, i.e., trade frequency. In Table 3, column (1), we only include the financial decision-making power variable, DECIDER, Grable and Lytton's (1999) 13-item risk tolerance measure, ATR, and the interaction between the two. We find that DECIDER is positive and statistically significantly correlated with the trade frequency as seen in Table 2. ...
We find that financial decision-making power per se is significant in explaining individuals’ objective risk-taking behavior and subjective risk attitude. More importantly, we show that this decision power attenuates the correlation between subjective risk attitude and objective risk taking. These results are significant in understanding the important role of decision-making power in individual risk-taking behavior.
... (Alex Wang). According to (Grable, 1999), risk appetite appraisal approaches can be divided into five groups, which we will use to address these: decision dilemma, utility principle, objective tests, heuristic judgments, and subjective evaluation. ...
... Marital status It is considered that marital status to be an important factor in deciding risk exposure levels among investors. When it comes to the influence of marital status on risk tendency, married people are less risk prone than single people (Hallahan et al., 2004), (Grable, 1999), ( Occupation The investor's profession can affect his or her risk value. Self-employed individuals, according to (MacCrimmon et al., 1986), are still willing to take more risks than others. ...
... The Protocol to the Rights of the child on the sale of children, child Prostitution and Pornography States parties would be guarantees to protection, trafficking in children to close the States governments and rehabilitations available in children. 20 Article 1 "States Parties shall prohibit the sale of children, child prostitution and child pornography as provided for by the present Protocol". Article 2 "For the purposes of the present Protocol"; (a) Sale of children means any act or transaction whereby a child is transferred by any person or group of persons to another for remuneration or any other consideration; (b) Child prostitution means the use of a child in sexual activities for remuneration or any other form of consideration; (c) Child pornography means any representation, by whatever means, of a child engaged in real or simulated explicit sexual activities or any representation of the sexual parts of a child for primarily sexual purposes. ...
Supply chain management is the most important part of international business companies. Therefore, during the covid-19 pant to make the transportation system of India was stopped for a certain time and because of that the supply chain management of the companies has impacted negatively. Furthermore, the use of AI and cloud computing processes in the supply chain management system has increased due to the pandemic. There are some digital platforms that it helped the companies to meet the suppliers through video calls and that is called cloud computing. This study aimed to determine the current and potential AI techniques that can enhance both the study and practice of SCM. The potential AI techniques along with cloud computing system, the current SCM service can be subfield and operated. This paper provides insights through systematic analysis and synthesis. The purpose of this research article is to investigate the impact of cloud computing and AI on supply chain management systems and communication during the pandemic. The researcher has adopted secondary methods to collect data about the uses of cloud computing and AI during covid-19. Similarly, the resources used qualitative methods to analyses all the data. All the suitable research method has helped the researcher to lead the study towards better outcome. Moreover, the entire study will be helpful for the readers to understand the both advantages along with disadvanta ges of using AI and cloud computing processes in the supply chain management system ________________________________________________________________________________
... Section E -Risk tolerance (E2-E19) Grable and Lytton (1999) Multiple measure of risk tolerance. Measure the risk tolerance of depositors in terms of their finances. ...
... These include multiple choice questions regarding the individual financial risk tolerance of participants. Since financial risk tolerance is such a contributing variable to household financial decisions, Grable and Lytton developed a 13-item risk assessment instrument (Grable & Lytton, 1999 The risk tolerance scale developed by Grable and Lytton (1999) is widely used throughout the global financial industry by more than 200 000 researchers (Grable & Joo, 2004:74). Hence, ...
... These include multiple choice questions regarding the individual financial risk tolerance of participants. Since financial risk tolerance is such a contributing variable to household financial decisions, Grable and Lytton developed a 13-item risk assessment instrument (Grable & Lytton, 1999 The risk tolerance scale developed by Grable and Lytton (1999) is widely used throughout the global financial industry by more than 200 000 researchers (Grable & Joo, 2004:74). Hence, ...
... in risk perception between men and women, thus making gender an important variable in deciding the risk perception of investors (Blais, Betz, & Weber, 2002;Chen &Tsai, 2010;Deb & Singh, 2017;Finucane, Slovic, Mertz, Flynn, & Satterfield, 2000;Flynn, Slovic, & Mertz, 1994;Lascu, Babb, & Phillips, 1997;Loibl & Hira, 2007;Slovic, 1987). Grable and Lytton (1999) found that gender is not significant in comparison to other factors of risk perception. 2. Age: Age differences in risk preference, risk perception, and risky decision making do not have consistent evidence that young investors are less risk adverse than the conservative investors (Gardner & Steinberg, 2005). ...
... Better education provides an understanding of the risk perception in the stock market (Junkus & Berry, 2010). Grable and Lytton (1999) and Bhattacharjee and Singh (2017) found that there is a positive relationship between educational level connected with risk perception and tolerance and claim. 4. Marital Status: Chen and Tsai (2010) in their studies found that unmarried investors are more risk tolerant than the married ones, because the married people have more social risks and responsibilities toward their family. ...
The purpose of this paper is to systematically review the literature published on various aspects of risk perception about equity investment. It also aims to raise specific questions for future research. A comprehensive and systematic literature review is done to get the insights of the available literature with an objective to identify the determinants of equity-share-related risk perception and identify its impact that influences equity investment behavior. The study found that risk perception can be measured mainly by using the axiomatic approach, socio cultural group approach, emotional reactions, marketing mix approach, and psychometric approach. It is also found that the main determinants of risk perception are demographic factors, emotional reactions, economic crisis, framing effects, loss aversion, heuristics, etc., which leads to some impact on investment behavior such as good portfolio choice, market-linked investment, entrepreneurial success, and retirement planning. A better understanding of risk perception will help the policymakers to improve the risk perception level of investors, which in turn will help in improving the investment culture of the nation.
... Emphasis for the development of more precise scale to assess the risk tolerance level has been done in early 90s where the researchers tried to develop a scale that should include various pre-determined dimensions like propensity to take risk, speculations or gambling, gains/ losses and experience of investing. Grable and Lytton [85] involved these dimensions in his scale in order to make it multidimensional in nature. ...
... An open assess publically available scale that has been considered as the most recent and effective scale of calculating the FRT is a scale established by Grable and Lytton that includes 13 items. Grable and Lytton [85] tested this is a closed-ended, multiplechoice questions based scale and found it adequate on criteria of validity and reliability (cronbach's alpha = 0.75). GL-RTS also found to be best suited in the present scenario as per the study piloted by Gilliam et.al. ...
... 1987);Finucane et al. (2000);Flynn et al. (1994);Loibl and Hira (2007);Lascu et al. (1997);Blais et al. (2002);Chen and Tsai (2010);Deb and Singh (2017);Grable and Lytton (1999) 2Age (A)Gardner and Steinberg (2005); Chen and Tsai (2010);Grable and Joo (1999); Junkus and Berry (2010); Singh and Bhattacharjee (2010a); Singh and Bhattacharjee (2010b);Deb and Singh (2017); Purkayastha(2008) 3Education (E)Sung and Hanna (1996); Chen and Tsai (2010); Junkus and Berry (2010);Grable and Lytton (1999);Bhattacharjee and Singh (al. (1978); Slovic(1993); Sachsea et al. (2012); Pellinen et al. (2011) 8 Information Asymmetry (IA) Chang et al. (2008); Mahmood et al. (2011); Wang et al. (2006); MacCrimmon and Wehrung (1990); Lion and Meertens (2005) 9 Content Domain (CD) Klos et al. (2005); Has-seldine and Diacon (2007); Vrecko et al. (2009); Rettinger and Hastie (2001); Blais et al. (2002); Baucells and Rata (2006) 10 Economic Crisis (EC) Caracota and Mihalascu (2009); Samsi et al. (2018); Roszkowski (2010) 11 Capacity of Investor (CI) Veeramani and Karthikeyan (2014); Singh et al. (H) Slovic et al. (1984) 15 Overconfidence (O) Daniel and Titman (1999); Singh (2011b); Broihanne et al. (2014); Barber and Odean (2001) 16 Familiarity (F) Shavit et al. (2016); Singh and Bhowal (2010b); Agarwalla et al. (2018) 17 Expert Knowledge (EK) Hodder et al. (2001); Koonce et al. (2005) 18 ...
... 1987);Finucane et al. (2000);Flynn et al. (1994);Loibl and Hira (2007);Lascu et al. (1997);Blais et al. (2002);Chen and Tsai (2010);Deb and Singh (2017);Grable and Lytton (1999) 2Age (A)Gardner and Steinberg (2005); Chen and Tsai (2010);Grable and Joo (1999); Junkus and Berry (2010); Singh and Bhattacharjee (2010a); Singh and Bhattacharjee (2010b);Deb and Singh (2017); Purkayastha(2008) 3Education (E)Sung and Hanna (1996); Chen and Tsai (2010); Junkus and Berry (2010);Grable and Lytton (1999);Bhattacharjee and Singh (al. (1978); Slovic(1993); Sachsea et al. (2012); Pellinen et al. (2011) 8 Information Asymmetry (IA) Chang et al. (2008); Mahmood et al. (2011); Wang et al. (2006); MacCrimmon and Wehrung (1990); Lion and Meertens (2005) 9 Content Domain (CD) Klos et al. (2005); Has-seldine and Diacon (2007); Vrecko et al. (2009); Rettinger and Hastie (2001); Blais et al. (2002); Baucells and Rata (2006) 10 Economic Crisis (EC) Caracota and Mihalascu (2009); Samsi et al. (2018); Roszkowski (2010) 11 Capacity of Investor (CI) Veeramani and Karthikeyan (2014); Singh et al. (H) Slovic et al. (1984) 15 Overconfidence (O) Daniel and Titman (1999); Singh (2011b); Broihanne et al. (2014); Barber and Odean (2001) 16 Familiarity (F) Shavit et al. (2016); Singh and Bhowal (2010b); Agarwalla et al. (2018) 17 Expert Knowledge (EK) Hodder et al. (2001); Koonce et al. (2005) 18 ...
The study intends to identify the factors that affect the risk perception of investors towards equity shares and further identifies the association between the identified factors. The study aims to conduct a thorough analysis of the factors affecting risk perception along with measurement of their influence on risk perception in respect of equity shares using Social Network Analysis (SNA). The factors influencing risk perception in equity shares have been identified through review of literature. Delphi technique was employed to determine the association between the factors and the significance of the impact of each of the factors was analysed using SNA. The study found that culture and education are most critical factors among the other factors influencing risk perception in respect of equity shares. While the factors such as capacity of investors, framing effect and loss aversion does not have much impact on the risk perception. The study will help the investors in making decision to invest in equity shares. The present study also gives avenues for the future research by providing the area where more research is needed.
... We controlled for the demographic and financial characteristics that have been shown in previous literature as determinants of households financial and consumption decisions (e.g., Sherraden, 2013;Xiao & Porto, 2017;Yazdanparast & Alhenawi, 2017). Risk tolerance is the ability to handle risk, a characteristic that varies considerably among individuals and plays an important role in shaping their decisions (Grable & Lytton, 1999). Individuals' risk tolerance could impact the level of fears and concerns they experience during the pandemic. ...
... Individuals' risk tolerance could impact the level of fears and concerns they experience during the pandemic. Risk tolerance was measured using the well-known investment risk tolerance quiz developed by Grable and Lytton (1999). This quiz is a reliable and valid measure of risk tolerance (e.g., Gilliam et al., 2010;Larkin et al., 2013) that captures the maximum amount of uncertainty that individuals are willing to accept when making financial and consumption decisions (Grable, 2000). ...
This study joins a rapidly growing body of research that investigates the multi-faceted impacts of the Covid-19 pandemic on consumers' behavior. Specifically, we examine how the pandemic-induced state of vulnerability impacts consumers' saving, investing, and spending decisions. Using survey data from four different countries (i.e., USA, UK, South Africa, and Mexico), we examine the role of personality on consumer vulnerability, create an index of consumer vulnerability, and establish the role of vulnerability in impacting important financial decisions. We report evidence that perceptions of vulnerability and the pandemic-induced changes in financial and consumption behaviors vary across residents of developed and developing countries. The results indicate that vulnerability is experienced and reflected through a multitude of fears and concerns and is influenced by personality traits (agreeableness, neuroticism, conscientiousness, need for material resources, and need for body resources) and can result in increased spending on products/services that are not normally perceived as necessities. Our findings carry important theoretical and managerial implications.
... knowledge and education, skills, confidence and motivation) and opportunity to act (through access to quality financial products and services), which influences households' financial management and decision-making (Sherraden, 2013;Xiao and Porto, 2017;Tahir et al., 2021). Risk tolerance is the ability to handle risk, a characteristic that varies considerably among individuals and plays an important role in shaping their financial decisions (Grable and Lytton, 1999). Risk tolerance also can be an important factor in determining many government policies related to consumer risks regarding financial decisions (Sung and Hanna, 1996). ...
... The quiz was first developed by Grable and Lytton (1999) then validated by many authors (e.g. Yazdanparast and Alhenawi, 2017) Financial planning ...
Purpose: The authors draw on psychological reactance theory, collective mental programming, psychological profiles and financial vulnerability experiences to assess the possibility that the pandemic may induce transformative changes in households' behavioral intentions related to financial decisions after the pandemic is over.
Design/methodology/approach: Using a unique survey data drawn from four different countries located in North America, Europe, Africa and Latin America, the authors show that the stressful conditions that accompanied the pandemic have instigated a state of financial vulnerability and stimulated instinctual defensive mechanisms among consumers.
Findings: The study results indicate that households have intentions to make defensive decisions in spending, consumption, planning and investment. Furthermore, the authors report evidence that personal psychological heterogeneity (as an individual factor) and collective mental programming (as a cultural factor) play a significant role in shaping households' post-pandemic financial intentions.
Research limitations/implications: The study findings carry important practical implications. For financial institutions, marketers and financial advisors, the authors’ work implies that individual and collective factors affect people's perception and behavioral intentions in response to financial adversities. For social planners and legislators, the authors’ work shows that they should expect not only short-term but also long-term reactions to the COVID-19 pandemic.
Originality/value: Most research on the impact of COVID-19 pandemic on households' financial behavior focuses on transitional adjustments made during the pandemic, and little emphasis has been placed on potential post-pandemic adjustments. The authors contend that it would be a mistake to analyze the pandemic-induced crisis as a temporary financial hardship.
... Guillemette and Finke (2014) and Rabbani, Grable, Heo, Nobre, and Kuzniak (2017) reported that while market returns and investors' willingness to take risk are correlated, market returns vary to a much greater extent than risk preferences. This is one reason much of the personal finance literature suggests that investor risk tolerance be measured using a standard test or scale (e.g., Anderson, Dreber, & Vestman, 2015;Grable & Lytton, 1999;Ryack, Kraten, & Sheikh, 2016). In fact, nearly all financial advisors do use some type of revealed preference or propensity measure to evaluate their clients' willingness to take a financial risk (Brayman, Finke, Bessner, Grable, Griffin, & Clement, 2015: Hubble, Grable, & Dannhauser, 2020. ...
... Gender was coded dichotomously (i.e., 1 = male and 2 = female). Financial risk tolerance was measured using a propensity measure developed by Grable and Lytton (1999). The scale has been shown to be empirically reliable and valid (Chung & Au, 2020;Grable, Lyons, & Heo, 2019;Kuzniak, Rabbani, Heo, Ruiz-Menjivar, & Grable, 2015;Nguyen, Gallery, & Newton, 2019). ...
The purpose of this chapter is to compare the performance of a deep learning modeling technique to predict market performance compared to conventional prediction modeling techniques. A secondary purpose of this chapter is to describe the degree to which financial risk tolerance can be used to predict future stock market performance. Specifically, the models used in this chapter were developed to test whether aggregate investor financial risk tolerance is of value in establishing risk and return market expectations. Findings from this chapter’s examples also provide insights into whether financial risk tolerance is more appropriately conceptualized as a predictor of market returns or as an outcome of returns.
... The survey, which took approximately 15 min to complete, was comprised of the following three sections: (a) a risk-tolerance assessment, (b) demographic and behavioral assessments, and (c) measures of financial literacy. The risktolerance questions were those developed by Grable and Lytton (1999). Demographic and behavioral questions included items designed to assess each respondent's gender, age, education, income, and marital status. ...
... Household income was measured as an ordinal variable with 1 = Less than $25,000; 2 = $25,000 to $49,999; 3 = $50,000 to $74,999; 4 = $75,000 to $99,999; and 5 = $100,000 or greater. Financial risk tolerance (FRT) was measured using a 13-item scale developed by Grable and Lytton (1999). Scores on the 13 items were summed with higher scores indicating a greater willingness to take financial risk. ...
This paper documents the effect of the COVID-19 pandemic on the use of profession financial advisors across a broad sample of financial decision makers (N = 16,431). Findings show that financial literacy played a significant role in describing the use of financial advisors in the USA before and during the pandemic. Those who exhibited higher levels of financial literacy were more likely to use the services of professional financial advisors. Based on a series of regression tests, it was determined that the effect of COVID-19 on the use of financial advisors was, to some extent, moderated by financial literacy.
... Respondents also indicated how satisfied they were with their present overall financial situation using a 10-point satisfaction scale, where 1 = extremely dissatisfied and 10 = extremely satisfied. The respondents' financial risk tolerance was assessed using a propensity scale developed by Grable and Lytton (1999). Scale scores were estimated by summing answers to 13 items. ...
... Respondents were asked to indicate their knowledge level using a five-point Likert-type answer choice ranging from 1 = not knowledgeable at all to 5 = extremely knowledgeable. Financial risk tolerance was assessed using a propensity scale developed by Grable and Lytton (1999). Scale scores were estimated by summing answers to 13 items. ...
... Venter, Michayluk, and Davey (2012) and (Dickason, 2017) also confirm these findings. On the contrary, Sung and Hanna (1996b), Grable and Lytton (1999) and Anbar and Eker (2010) find that no significant relationship exists between age and the level of risk tolerance of individuals. Irwin (1993) states that it generally is accepted that individuals earning high annual incomes are willing to tolerate more risk than individuals earning lower annual incomes. ...
The risk tolerance of an individual depositor plays an integral part in a financial decision-making process. Risk perception is furthermore associated with the level of depositor uncertainty, which ultimately leads to irrational depositor behaviour. The South African banking industry is closely concentrated and dominated by a few banks, hence, any adverse changes in the banking industry will affect the financial sector tremendously. It was therefore necessary to test how much risk depositors are willing to tolerate. This paper made use of hypothetical operational risk events within a bank in order to test how likely depositors will be to withdraw funds from their bank accounts. Correlation analysis was used to test the relationship between depositors' likelihood to withdraw and their risk tolerance levels. An inverse relationship exists between depositors' risk tolerance and their willingness to withdraw. Depositors will be less likely to withdraw the higher their risk tolerance level and more likely to withdraw the lower their risk tolerance level. Older depositors indicated to be risk adverse while a positive relationship was found between risk tolerance, income, and education level.
... The general risk and tourism domain risk questions were based on existing, well tested research instruments. For example, tolerance of general risk questions were taken from Dohmen et al. (2005) and Grable and Lytton (1999), competence to manage general risk questions were adopted from Williams and Baláž (2013), tolerance of travel risk questions were selected from Sönmez and Graefe (1998), competence to manage travel risk questions were adopted from Lepp and Gibson (2003). The measures of intolerance of uncertainty were based on Freeston et al. (1994) and Carleton et al. (2007). ...
This study analyses how Covid-19 shapes individuals’ international tourism intentions in context of bounded rationality. It provides a novel analysis of risk which is disaggregated into tolerance/aversion of and competence to manage risks across three different aspects: general, domain (tourism) and situational (Covid-19). The impacts of risk are also differentiated from uncertainty and ambiguity. The empirical study is based on large samples (total=8,962) collected from the world’s top five tourism source markets: China, USA, Germany, UK and France. Various risk factors show significant predictive powers of individual’s intentions to defer international tourism plans amid Covid-19. Uncertainty and ambiguity intolerance is shown to lead to intentions to take holidays relatively sooner rather than delaying the holiday plans.
... The research fills a void in the literature by including respondents from India. Second, it is noted that previous research has examined financial risk tolerance using demographic, socioeconomic, and attitude variables as independent variables (Grable & Joo, 2000), with conflicting outcomes and it is well-documented in the literature that relying only on these factors fails to achieve the objectives of investment due to its limited efficacy (Grable & Lytton, 1999a, 1999b. Further, Financial Risk Tolerance does not remain static and changes over time. ...
The aim of this paper is to look at how two psychological factors affect financial risk tolerance (FRT) and financial risk-taking behaviour (FRB) of individual investors. The study also investigates the role of FRT in mediating the relationship between psychological factors and FRB. A standardised questionnaire was used to collect the information. For the study, a total of 303 completed questionnaires were used. The proposed research model was validated and assessed using partial least squares structural equation modelling. The study' findings revealed some important experiences. Emotional intelligence and impulsiveness have a significant relationship with both FRT and FRB, according to the results. The findings also support FRT's position as a mediating factor in the proposed research model. The results emphasise the importance of psychological factors in determining an individual's FRT and FRB. FRT is a complex mechanism that entails more than just psychological considerations. As a result, further research is needed to decide which additional factors financial advisors can use to increase the explained variance in FRT inequalities.
... A recent study found that financial risk tolerance is essential for retirement planning and financial counseling (Bayar et al. 2020). Grable (1999Grable ( , 2000 found that people's financial risk tolerance levels differed based on age, educational background, marital status, occupation, cultural background, and economic expectations. Hence, the determination of personal financial risk tolerance demonstrates the degree to which individuals are able to choose financial investments within their portfolios (Bayar et al. 2020). ...
The life expectancy rate of individuals worldwide has risen, and Saudi Arabia is not excluded. Rising long-life expectancy may jeopardize employees’ pensions and reduce the chances of adequate earnings and a decent life after retirement. Moreover, the number of employees, who have paid into pension funds and are now retired, has increased, indicating that pension funds are expected to decrease. Apart from the above, the level of financial literacy in Saudi Arabia was substandard. Therefore, the ultimate objective of this research is to examine the measurable factors that could impact employees in their financial planning for retirement (FPR). These factors comprise the employee’s financial literacy (FL), financial risk tolerance (FRT), and cultural factors based on the CWO model. Moreover, this study aims to investigate the mediating roles of culture in their relationship with financial planning for retirement. Primary data was collected during the COVID-19 pandemic from mid-July 2020 until the end of January 2021 using a non-probability convenience sampling approach involving 525 participants. The Structural Equation Modelling (SEM) technique was used to analyze the data. To determine the type of study variables, either a formative or reflective model of Confirmatory Tetrad Analysis (CTA-PLS) was used. The results show the significant influence of basic FL, FRT, and culture on FPR. Moreover, it shows the critical role of culture among those with advanced FL and FRT. Previous studies have examined FL and FRT in FPR without considering the effect of culture as a mediator.
... Risk tolerance is a person or investor's tolerance for the risks faced or accepted in investing. According to Grable & Lytton (1999), risk tolerance has three indicators: risk seeker, risk-neutral, and risk averter. ...
This study aims to provide empirical evidence of the effect of financial knowledge and risk tolerance on investment decision-making. This type of research is associated research with data collection methods using survey samples. Measurement of variables in this study uses a Likert scale from 1 for strongly disagree to a scale of 5 for strongly agree. The population in this study are investors who have attended the capital market school in the Indonesian Stock Exchange, West Nusa Tenggara Representative Office, and who had a single investor identification (SID). Sampling refers to the Slovin formula with a sample size of 110 respondents. Analysis of the data in this study using multiple linear regression analysis. The results of this study indicate that financial knowledge and risk tolerance affect investment decision-making. Implications of this study for investors to pay more attention to understanding in the form of financial knowledge and recognize the type of risk tolerance that exists in investors in making investment decisions in the capital market.JEL: G11, G14, G32, G41
... To handle complications, one may prefer financial advice. Financial risk tolerance is a weighty issue and a significant factor in several financial decisions (Grable, 1999;Matis et al., 2013). Risk tolerance is the amount of 4, XXIV, 2021 Finance risk a person is willing to accept (Callan & Johnson, 2002). ...
The aim of this paper is to investigate the determinants of financial advice with a special focus on the cultural role in the influence of risk tolerance on seeking advice for financial issues. Financial literacy is covered by financial attitude, behaviour and knowledge. Financial inclusion is the other factor considered in the conceptual framework, as an indicator which can enhance both financial behaviour and financial advice. The research is based on primary data collected in two European nations, manifesting differences in culture, which gives the possibility to test the uncertainty avoidance role in the above relationship. This particular focus is the novelty of this work, as it sheds light on the importance of culture while designing policies with the aim to enhance individuals’ financial literacy and advice. The hypotheses are tested by using Partial Least Square- Structural Equation Modelling (PLS-SEM) method. It was found that financial behaviour improves as financial inclusion gets better, along with financial attitude and knowledge. Furthermore, financial advice is positively influenced by financial inclusion and risk tolerance and partly by financial literacy. Additionally, findings demonstrate that culture does matter in explaining differences between countries. Culture in this paper is represented by uncertainty avoidance, as one of the Hofstede’s culture dimension. Individuals from countries that manifest a very high preference for avoiding uncertainty reflect a negative relationship between risk tolerance and financial advice. The paper offers useful insights for policymakers and industry leaders in understanding the most influential factors on financial advice. This enables them to scheme policies and services aimed at equipping citizens with knowledge and skills to make the best use of their financial resources.
... The selected areas are Ugbowo, New Benin, Ring road, Ikpoba Hill, and Sapele Road. Occupation refers to the principal activity which someone engages in to meet requirements for their livelihood (Grable & Lytton, 1999b;Grable & Lytton, 1999a). An investor may be working in the private sector or the public sector or be self-employed. ...
This study empirically examines the influence of demographic factors on the investment behaviour of individual investors using Edo state, Nigeria as its case study. Using the maximum likelihood method of estimation to estimate four multinomial logit equations, the results showed that educational level, occupation, and marital status are the main demographic determinants of individual investors' behaviour. Also, age and gender have strong influences on individual investor's risk preferences. Therefore, we recommend that it is pertinent that macroeconomic policies aimed at boosting investment should consider the expansionary effect of targeting civil servants and those in professional practice by providing them with investment incentives as these categories of persons have a much higher affinity for risk for investment purposes.
... Grable and Lytton Risk-Tolerance Scale (RTS; Grable & Lytton, 1999) The RTS is a 13-item measure of FRT. It is widely used by consumers, financial advisers and researchers to evaluate a person's willingness to engage in a risky financial behaviour (Kuzniak et al., 2015). ...
To evaluate the effect of demographic variables, delay discounting and dysfunctional personality traits on financial risk tolerance (FRT), 281 community-dwelling adults were administered the Italian translations of the Risk-Tolerance Scale (RTS), Monetary Choice Questionnaire, Probability Discounting Questionnaire, and Personality Inventory for DSM-5-Short Form (PID-5-SF) self-report questionnaires through an online platform. Hierarchical robust regression results showed that the linear combination of demographic variables (gender and active worker status), delay discounting measures and selected PID-5-SF trait scale scores (i.e., Attention Seeking and Risk Taking) explained roughly 39% of the RTS total score. As a whole, our findings underscore the role of demographic characteristics, dysfunctional personality traits and delay discounting in FRT expression. As a result, FRT is likely to represent the linear combination of several factors that should be assessed in order to understand FRT and prevent erroneous choices among lay investors.
... Part two of the questionnaire consists of investment risk appetite (IRA) questions from Grable and Lytton (1999). It measured three concepts of financial risks, such as investment risk (IRA1), convenience and experience risk (IRA2), and speculative risk (IRA3). ...
Online Social Network Sites (SNSs) provide a lot of information to understanding young investor behavior. As the interest of financial practitioners, the young investor has their risk tolerance. So, this study aims to predict the investment risk appetite through social networking sites (SNSs) as a vast information exchange platform using young investors' Instagram usage behavior. This research uses investment risk appetite and extroversion personality as the dependent variables. Moreover, the number of Instagram followers, spending time on Instagram, the frequency of Instagram users to log on, Instagram usage for personal expression, and Instagram usage for social relationships as the independent variables. The researchers use 300 young stock investors through the online questionnaire. The results study show that the number of followers on Instagram and the Instagram usage for social relation significantly affect extroversion personality. The extroversion personality significantly affects the investment risk appetite. Otherwise, spending time on Instagram, frequency of log on to Instagram, the use of Instagram for self-expression do not considerably affect the extroverted personality. This result obtains the probability of understanding the young investor's risk appetite through their Instagram usage behavior. Thus the financial consultant can gather the information to understand their current social network activities.
... Financial experience with investment was asked using a single item, "what is your previous experience regarding financial investment?" with three levels (i.e., "a novice with a little investment experience," "have certain experience," and "an expert with rich experience"). Risk tolerance was measured by thirteen items (Cronbach's alpha = 0.72) adopted from [31]. Attitude toward technology was assessed using a single item, "what is your attitude toward new technology" with four levels (i.e., "do not trust at all", "reserving opinion and just watching", "relatively willing to try", and "really want to use"). ...
Robo-advisors have recently become increasingly accessible and gaining interest among consumers. However, there still exist problems in acceptance of robo-advisors among consumers. In this study, we have identified influential factors of robo-advisor acceptance, conducting an online survey involving 207 participants to examine their relationship with use intention. A hierarchical model of robo-advisor acceptance was built that integrated product features, user perceptions, and use intention. The model showed that the competence and expected earnings of a robo-advisor contribute to users’ perception of its usefulness. Furthermore, the customization and competence of a robo-advisor decreases users’ perceived risk. Additionally, better designed account management and more authority for users increase perceived control over a robo-advisor. Moreover, although usefulness was regarded as the most important factor, only perceived risk (negatively) and perceived control (positively) were significantly associated with the intention to use robo-advisors. Based on the acceptance model, implications for the robo-advisor design were discussed.
... Risk tolerance and investment decisions have a positive relationship. The risk factor slows down the speed of the investors in the financial planning and investment management (Grable & Lytton, 1999). ...
... Financial Risk Tolerance Scale (FRTS: Grable & Lytton, 1999). The FRTS consists of 13 items that assess financial risks and investment preferences. ...
Risk attitudes are known to play an important role in influencing one’s behavior under conditions of uncertainty. To date, cultural influences on risk attitudes - beyond the effects they have on perceived risk - have not been well understood. Having a cross-culturally invariant measure of risk attitudes is a prerequisite for carrying out more in depth explorations in this area. The current study applied the domain-specific risk attitudes framework and focused on the Chinese and US cultural contexts. Using novel network analysis techniques, we explored domain-specific patterns of risk attitudes in Chinese and US community samples and we subsequently developed a version of the Multi-Domain Risk Tolerance scale (MDRT-EC) that had similar applicability in both samples. The MDRT-EC demonstrated excellent psychometric characteristics and achieved strong measurement invariance across both samples. The associations between MDRT-EC domain scales and criterion scales were also similar between the two samples, further indicating the measurement invariance of the MDRT-EC. Finally, we used the MDRT-EC to explore cultural differences in risk attitudes across domains and their predictive relations with a range of lifestyle behaviors.
... The third section contains 13 questions of the FRT scale are adopted from Grable and Lytton (1999), and for reliability, the Cronbach alpha for FRT is 0.73, which is acceptable. ...
The study examines the effect of family income (FI) and financial risk tolerance (FRT) on entrepreneurial intention in students of Universities of the Higher Education Sector located in district Swabi. This is an explanatory and co relational study carrying a sample size of 330 out of the total of all 501 students from public and private Universities in Swabi. Financial determinants are prominent aspects of the study contributing to entrepreneurial intention. The study has established the relationship between FI and FRT on EI of universities of the Higher Education Sector located in district Swabi. The study is a contribution to the rare work on the relationship between financial determinants and entrepreneurial intention. The study revealed that FI and FRT significantly affect EI, whereas the order of contribution of these determinants on EI are evident their coefficients are FRT and FI.
... To measure the soldiers' attitude towards risk tolerance, we used the following gains-and-losses question (see Grable and Lytton 1999): ...
... In practice, for an interconnected financial system, the multivariate loss function l may reflect the risk preference of a decision maker and it may be obtained via financial risk tolerance assessment (Grable and Lytton, 1999) or questionnaires in utility assessment methods. Examples of utility assessment methods include the standard or paired gamble methods, the probability equivalence method, the value equivalence method, and the certainty equivalence method (see, e.g., Farquhar (1984); Wakker and Deneffe (1996) and references therein). ...
... Our proxy for risk preferences is based on the Survey of Consumer Finances (SCF) risk assessment measure (Brown & Van der Pol, 2015; Grable & Lytton, 1999;Hanna & Lindamood, 2004). The survey question in HILDA asks respondents: "Which of the following statements comes closest to describing the amount of financial risk that you are willing to take with your spare cash? ...
We present the first study to examine the impact of temperature shocks on household savings behaviour. We first develop a theoretical model to examine the relationship between average temperature and savings via risk and time preferences. The model predicts an ambiguous effect of both risk and time preferences as channels. We test the theoretical predictions using longitudinal data from the Household, Income and Labour Dynamics in Australia Survey and satellite re-analysis temperature data. We find that a standard deviation increase in average temperature is associated with a 4.3% increase in net worth and a 12.8% increase in savings. We examine risk preferences and time preferences as channels and find that time preferences mediate the relationship between temperature shocks and savings.
... The dataset was cross-sectional (n = 179,450). The survey included 13 risktolerance items from a scale originally published by Grable and Lytton (1999). This scale was the basis for the investigation because scores derived from the questionnaire have been used extensively in published studies. ...
Over the past three decades, numerous scaling and attitudinal measurement techniques have been developed to facilitate the assessment of an individual's financial risk tolerance. Cronbach's alpha has traditionally been used as the primary measure of scale reliability for assessment tools that have been developed using classical psychometric theory. Recently, however, psychometricians have raised concerns about the ongoing use of Cronbach's alpha as a robust measure of scale reliability. In its place, some have argued that reliability estimates should be based on greatest lower bound (GLB) and omega estimations. The purpose of this paper is to describe and compare these alternative reliability measures to Cronbach's alpha for a widely used research‐focused financial risk‐tolerance scale. Using a dataset with 179,450 observations, findings from this study suggest that while estimates based on Cronbach's alpha, omega, and the GLB do differ, for the most part, reliability estimates across the measures are more similar than dissimilar.
... The outcome variable of interest in this study was financial risk tolerance (FRT). FRT was assessed using a propensity measure developed by Grable and Lytton (1999). The scale has been widely used as a research instrument among those interested in assessing FRT (Kuzniak et al. 2015;Lucarelli et al. 2011;Rabbani et al. 2017). ...
The purpose of this paper is to present findings from research that was undertaken to answer the following questions. First, to what extent is political orientation associated with financial risk tolerance, and second, to what degree is political orientation predictive of changes in risk tolerance across periods? Using panel collected before and after the 2020 U.S. presidential election, it was determined that the strength of affiliation with the Republican and Democratic Parties was descriptive of cross-sectional financial risk tolerance. Republicans were found to exhibit greater risk tolerance compared with Democrats. Across periods, the risk tolerance of Republicans was less stable, whereas the financial risk tolerance of Democrats was more stable. A significant decrease in risk tolerance was observed for those affiliating as a Republican pre-election to post-election. When political orientation was measured on a scale, the decrease in risk tolerance across periods for Republicans was significant. The risk tolerance of those affiliating as a Democrat increased across the periods but at a lower rate than in the drop in scores among Republicans. When viewed across the variables of interest in this study, political orientation was found to be an important descriptor of FRT.
... For determining risk tolerance level, the scale is used in the study called "Financial Risk Tolerance Revisited: The Development of a Risk Assessment Instrument" by Grable and Lytton (1999a). This scale, which includes 13 multiple-choice questions, measures the risk tolerance of individual investors in the context of investment risk, financial risk and speculative risk components. ...
Understanding individual risk tolerance before making an investment decision is very important. The different characteristics of investors result different levels of risk tolerance, hence considering investor's sociodemographic factors is very important in assessing individual risk tolerance. This study aims to investigate factors affecting financial risk tolerance such as sociodemographic factors and multidimensional of risk. This study was conducted on 407 Indonesian investors through an online survey. The results showed that sociodemographic factors such as age, gender, marital status, education and income had an effect on financial risk tolerance, whereas ethnics do not have an effect on financial risk tolerance. This study also finding that multidimensional of risk had an effect on risk tolerance and be potential mediator between sociodemographic factors and financial risk tolerance. This study also consider Data Envelopment Analysis (DEA) to asses investor risk profile. DEA scores show that most of Indonesian investor tend to have less risk tolerance.
This paper reports on the study of best practices in evaluation methodologies for aging in place technologies, and analyses their feasibility in a pandemic environment. The pandemic situation, with various physical distancing restrictions in place, especially for vulnerable older adults, has increased the importance of deploying health monitoring and social interaction technologies for aging in place. The pandemic also made it more difficult for researchers and developers of technologies to evaluate the usability of home health monitoring technologies. Existing technology evaluation methods mostly involve laboratory and home technology usability evaluations that could be problematic during physical distancing restrictions, and are not well suited for rapid evaluation of health monitoring technologies. The increasing trend in virtual doctor and health professional visits puts additional pressure to speed up innovation for home health and wellness monitoring and communication technologies without increasing risks for vulnerable populations. Researchers observed challenges with performing HCI research with older adults in a pandemic situation, including challenges with participant recruitment, obtaining informed consent for the study, shipping technology to the willing participants, assessing the ability of older adults to set up both digital health technology and remote usability tools, and research data collection. The need for low cost, low risk, easy to use and privacy-preserving usability evaluation methods and tools for home health monitoring is growing rapidly, and new remote usability evaluation methods and tools will add to the growing arsenal of digital technologies used in the public health response to COVID-19 and beyond.
It is believed that an individual is rational. He takes financial decisions after thorough evaluation of all available investment alternatives given their risk level and thereby maximizes his wealth. However, Several studies in the recent years have proved that rationality is not the only factor influencing financial decisions of an individual. There are many other factors influencing it. This study seeks to understand impulsive personality trait as a factor affecting financial risk behavior of individuals. It studies degree of risk that an investor can assume in impulsivity. Every individual is impulsive to some extent and this impulsivity affects his decisions including financial decisions. In this study, these impulsive traits are identified and further their impact in financial risk behavior has been studied. It has been found that impulsivity and risk level are positively correlated. Further, no statistically significant difference was found between these impulsive personality traits and varying degrees of risk.
The main aim of this study is to explore the conceptual framework of corporate financialculture and its practical relevance in an emerging Central European market economy, at the level ofthe Hungarian SME, with a special emphasis on the Hungarian SME sector. In our study, we highlighteach dimension of corporate financial culture, focusing on the established corporate financial cultureindex, and within it, we examine the significance of the financial management elements sub-index andthe risk and insurance sub-index separately. In addition, we look for logical, causal, and statisticallyverifiable relationships between corporate financial literacy and the outcome of corporate financialdecisions and corporate risk taking. The relationships were broken down over two years in theanalysis. Approximately 2167 responses were included in the 2019 sample and 3281 in the 2021sample. These representative samples were taken from the Hungarian SME sector and multiple linearregression models were built to find a significant moderation effect of financial literacy betweenperceived risks and the insurance activity of companies. We conducted our research in two differentperiods, the unique feature of which is that we conducted a survey before and during the coronaviruscrisis, so we could make a comparative analysis. The method used in this research study is a literaturereview analysis of reference manuscripts, discussing topics related to financial literacy, corporate riskmanagement, and corporate financial management, published in the last 10 years. Our results showthat there are positive and significant relationships between company management, corporate riskmanagement, and corporate financial literacy. The results of our study draw the attention of companyleaders to the practical significance of financial culture—efficiency, profitability, and stability.
Understanding individual risk tolerance before making an investment decision is very important. The different characteristics of investors result in different levels of risk tolerance, hence considering investor's sociodemographic factors is very important in assessing individual risk tolerance. This study aims to investigate factors affecting financial risk tolerance such as sociodemographic factors and multidimensional risk. This study was conducted on 438 Indonesian investors through an online survey. The results showed that sociodemographic factors such as age, gender, marital status, education, and income had an effect on financial risk tolerance, whereas ethnics do not have an effect on financial risk tolerance. This study also found that multidimensional risk had an effect on risk tolerance and be the potential mediator between sociodemographic factors and financial risk tolerance. This study also considers Data Envelopment Analysis (DEA) to assess investor risk profile. DEA scores show that most Indonesian investors tend to have less risk tolerance.
Risk attitudes are of interest to researchers in many fields as they play a crucial role in our day-to-day decision-making. In this paper we develop a measure of risk attitudes—the Multi-Domain Risk Tolerance (MDRT) scale—that addresses some key shortcomings of popular self-report scales, such as the Domain-Specific Risk-Taking (DOSPERT) scale. We do this by clearly aligning the risk in the items with the particular domain of risk, reducing item ambiguity, and reducing the impact of prior knowledge. We developed the MDRT using an Exploratory Graph Analysis (EGA) and Item Response Theory (IRT) approach with a community sample (N = 921). We examined its construct and convergent validity (N = 493) and construct generalizability (N = 487). We found that the MDRT had excellent internal consistency, dimensionality and latent factor structure. The MDRT also demonstrated significant convergent validity with related scales used in the literature. The MDRT is shown to be a promising alternative measure of risk attitudes.
There is a growing interest in the role of personality characteristics in describing financial outcomes. The Big Five personality traits have been shown to predict relevant financial outcomes including income and net worth. In the present research (n = 395), we move beyond individual Big Five personality traits to look at personality profiles in the prediction of financial outcomes. Using latent profile analyses, we identified three profiles—Under Controlled, Resilient, and Over Controlled—which were uniquely associated with income, risk tolerance, and life satisfaction. These patterns held even after controlling for gender, education, and age. The discussion focuses on the relative benefits of a personality approach over the common risk-tolerance approach.
The purpose of the study was to analyze the degree to which categories of financial risk-tolerance miscalibration are associated with portfolio choices made by financial decision-makers. A differential prediction model was applied to investment risk tolerance data from 2017-2018 to assess the presence of miscalibration. Results from Tobit regressions showed that some survey respondents did engage in the miscalibration of their financial risk tolerance. Although results varied by sub-samples, those who systematically under-estimated their financial risk tolerance were observed to hold portfolios that were less risky than those who were able to match their self-assessed risk tolerance to their psychometrically reliable score. No clear pattern of portfolio choice for those who over-estimated their financial risk tolerance was noted. Being female and between the age of 55 to 64, having an income of $100,000 or more, and working with a financial advisor were found to be more consistent descriptors of portfolio risk compared to risk-tolerance miscalibration.
Purpose
Even after appreciating multi-faceted merits of retail participation in stock markets and extensive efforts by policymakers and financial service industry to increase it, the present low retail participation in Indian stock markets is cause of grave concern. The purpose of this paper is to identify plausible drivers and deterrents of prospective and current household individuals through a multi-stage qualitative enquiry.
Design/methodology/approach
Two qualitative studies are conducted. In Study 1, scholarship of stakeholders is engaged through participative diamond model to propose behavioural classification of retail investors based on two-parameter framework. In Study 2, behavioural substructures of retail investors that drive or deter investment intentions and actions are identified through in-depth interviews.
Findings
Financial self-efficacy, past experience (own or peer group), financial eco-system, operational literacy, higher charges by financial experts and low liquidity in the hands of the investors are some key factors that influence investment intension and action of individual investors. Though digital platforms have helped to overcome hurdles faced by an investor but its availability, awareness and ease of use still remain a concern.
Practical implications
The inductive findings of this study uncover some important take-aways for the financial service industry – improve operational literacy, digital awareness, ease of use and incorporate risk assessments in client portfolios – and for the policymakers – improve investment eco-system through digital availability, financial literacy workshops focussed on operations.
Originality/value
To the best of the authors’ knowledge, this study is one of the initial attempts to adopt a multi-stage qualitative enquiry to propose behavioural classification of retail investors and uncover reasons that drive or deter individual investors’ intentions and actions in the context of Indian stock market. Moreover, this study provides necessary impetus to analyse and improve operational literacy (instead of financial literacy) and financial eco-system for higher retail participation.
Objective
This study investigated the association between family financial socialization during adolescence and seeking financial advice in early adulthood. Personality, financial risk tolerance, and financial knowledge were examined as mediators. Gender differences throughout the parental financial socialization process and outcome were also explored.
Background
Young adults are transitioning into adulthood. It has been found they lack fundamental financial knowledge and are more vulnerable to financial stress and financial shocks. Understanding young adults' financial advice-seeking behavior is important because it is linked to positive financial outcomes. Parents serve as significant financial socialization agents for their children and can influence their financial knowledge, attitude, behavior, and long-term well-being. However, little attention has been paid to the role of parents in the financial socialization process on children's financial advice seeking in early adulthood.
Method
Using the 1997 National Longitudinal Survey of Youth and the family financial socialization model, we constructed a structural framework in which we could examine whether two aspects of family financial socialization, parenting style and receiving allowance, influenced young adults' propensity to seek financial advice. Also, the mediating roles of personality traits, financial risk tolerance, and financial knowledge were examined.
Results
Personality traits, financial risk tolerance, and financial knowledge were directly associated with financial advice-seeking behavior. Parenting style and receiving allowance during adolescence were indirectly associated with young adults' financial advice-seeking behavior. Additional analyses by gender showed significant differences in the direct and indirect associations among financial socialization factors, personality traits, and financial advice-seeking behavior between men and women.
Conclusion
This study illustrates the association between early financial socialization and financial advice-seeking behavior through psychological and knowledge factors focusing on the importance of family influence. Using a national dataset and the structural equation modeling method, we found insightful direct, indirect, and total effects of parental financial socialization on young adults' financial advice-seeking behavior and significant gender differences in these effects.
Implications
The findings provide implications for policymakers and financial educators and practitioners. This study underscores the significant role of parents as financial socialization agents and their long-term influence on adult children's financial advice-seeking decisions. Current financial literacy programs not only should focus on educator–student relationships but also need to pay attention to parental involvement in children's financial socialization process. Adult financial education would help parents play a role in providing financial advice to their children as more capable socialization agents. Accessible financial counseling services at the community level can potentially meet the needs of young adults who have a lower financial knowledge to benefit from professional advice.
ÖZET
Bireylerin fiziksel özellikleri özgüveni, sosyal hakimiyetleri, borsaya katılım ve riskli varlıklara yatırım ihtimalini etkilemekte hatta şirket politikalarında bile farklılıklar oluşturmaktadır. Daha önce yapılan çalışmalarda obez bireylerin riskten kaçınma davranışı gösterdikleri bulgulanmaktadır. Ancak literatürde oldukça yeni olan bu durumun araştırılması ve elde edilecek bulguların yeni çalışmalara ışık tutması gerekmektedir. Çalışma bu açıdan boy, kilo ve obezitenin finansal risk iştahı üzerindeki etkisini cinsiyet bağlamında açıklamayı amaçlamaktadır. Online anket aracılığıyla 18 yaş ve üzerindeki 515 kişiden oluşan örneklemden elde edilen veriler SPSS Statistic 26 programında analiz edilmiştir. Analiz sonucunda vücut kitle indeksinin (VKI) finansal risk iştahı (FRI) üzerinde anlamlı ve pozitif bir etkiye sahip olduğu görülmektedir. Cinsiyet bağlamında boy, kilo ve vücut kitle indekslerinin finansal risk iştahı üzerindeki etkileri ayrı ayrı değerlendirildiğinde kadınların kilo ve vücut kitle indekslerinin finansal risk iştahı üzerinde anlamlı bir etkisi bulunmaktayken, boy uzunluğunun finansal risk iştahı üzerinde anlamlı bir etkisi çıkmamıştır. Erkeklerin ise yalnızca boy uzunluklarının finansal risk iştahı üzerinde pozitif ve anlamlı bir etkisi bulunmuştur. Elde edilen bulgulardan hareketle erkeklerde daha uzun boyluların, kadınlarda ise kilolu ve vücut kitle indeksi yüksek olanların daha fazla finansal risk alma konusunda istekli oldukları söylenebilir.
Generation Z, who can handle almost everything online, from the picture taken by their mobile phone to purchasing or transferring money. Therefore, using several tech solutions, they are not looking for traditional banking solutions, like the ones where physical presence is needed. Their wish is to obtain secure, fast, easy financial solutions, and services. Additionally, to ensure payments can be easily made and investments are available on hand. All of this being virtually available any time when it is needed, even from their mobile phones and also providing a high-level of personalization possibilities. In our study, we surveyed risk attitudes governing individual investment decisions based on primary research conducted on a large sample size among university students. When surveying risk attitudes, we presented a group of university students studying in Hungary with questions of a test published in an international journal article by John Grable and Ruth H. Lytton (Grable – Lytton, 1999). Between early December 2020 and 15 January 2021, more than 2,000 students filled out our questionnaire. The results of the questionnaire show that risk attitude values among the group of Hungarian university students are in line with international experiences. Primary data collection will continue in the spring of 2021, and it will subsequently allow a comparison to be made between the attitudes to risk and investment of university students from different fields of study. The composition of the questionnaire's respondents will make it possible to survey and compare the 'Z’ generation’s attitude with that of other generations.
The paper investigates the influence of demographic factors such as gender, age, marital status, level of education, occupation, and income on the financial risk tolerance of individual investors in Nigeria. A survey research design was adopted and all the staff, students, and owners of business centers in the University of Benin who have invested in shares in the Nigerian Stock Market constitute the population of the study. The study targeted a convenient sample of 70 respondents through a snowball sampling technique (i.e., the first respondent was asked to recommend a colleague or friend who has invested in shares in the Nigerian Stock Market until the required sample is gotten). Out of the 70 questionnaires administered 60 were found usable. Analysis of data was carried out using a t-test, Analysis of variance (ANOVA), and regression. Statistical Package for Social Sciences (SPSS) version 22 was used to conduct all the analyses. The study found that the majority of respondents (investors) belong to the average/moderate risk tolerance group. Results of the t-Test and ANOVA analyses indicated that while there was a significant difference in financial risk tolerance levels according to gender and income, there were not meaningfully different in financial risk tolerance levels as to the age, marital status, educational level, and occupation. The regression analysis reveals that three demographic variables (gender, marital status, and income) significantly affect the financial risk tolerance level of individual investors. The study, therefore, recommends among others that financial service providers need to frame their products according to investors' risk-taking capacity which definitely will increase market efficiency as well as investors' confidence.
Bu çalışma finansal okuryazarlık düzeyinin finansal risk iştahı üzerindeki etkilerinin belirlenmesi ve demografik değişkenler arasında finansal okuryazarlık düzeyinde ve finansal risk iştahında oluşabilecek farklılıkların tespiti amacıyla yapılmıştır. Anket aracılığıyla kişilerin finansal risk iştahları ve finansal okuryazarlık düzeyleri belirlenmeye çalışılmıştır. Bu kapsamda toplamda 448 adet katılımcı çalışmaya katılmıştır. Çalışmadan elde edilen bulgulara göre bireylerin finansal okuryazarlık düzeyleri finansal risk iştahlarını etkilemektedir. Finansal okuryazarlık düzeyi arttıkça bireylerin finansal risk alma iştahının arttığı belirlenmiştir. Erkeklerin finansal okuryazarlık düzeyleri ve finansal risk iştahları kadınlarınkinden yüksektir. Evli olanların bekârlara kıyasla finansal okuryazarlık seviyesinde anlamlı farklılığın olduğu ve evli olanların bekâr olanlardan daha yüksek finansal okuryazar olduğu söylenebilir. Evli ve bekârların finansal risk iştahlarında anlamlı farklılık bulunmamıştır. Yaşın, eğitim seviyesinin, çocuk sahibi olmanın ve gelir düzeyinin finansal okuryazarlık seviyesinde anlamlı farklılık oluşturduğu; ancak finansal risk iştahı almada bireyler arasında anlamlı farklılığın oluşmadığı görülmüştür. Bu sonuçtan hareketle demografik değişkenlerin finansal okuryazarlık seviyelerinde önemli farklılıkları oluşturduğunu ancak cinsiyet dışındaki diğer demografik değişkenlerin finansal risk iştahında anlamlı bir farklılık oluşturmadığı ifade edilebilir. Bunun yanında finansal okuryazarlık düzeylerindeki artış ile bireylerin kendilerine daha fazla güven duydukları düşünülmektedir. Kendilerine daha fazla güvenen bireylerin finansal risk alma konusunda daha cesaretli davrandıkları çıkarımı yapılabilir.
The purpose of this study is to investigate the relationship between an individual’s narcissistic personality and his/her financial risk tolerance in an emerging country sample. The sample consists of undergraduate university students who have been taking finance classes in their student life. The data is examined using mean differences and regression analyzes in this study. The main findings show that men tend to be more narcissistic and more risk-tolerant than women. The regression analysis result shows that narcissism and financial risk-taking have a statistically positive and significant relationship. In other words, the increase in the narcissism level of an individual leads him/her to be more risk-tolerant. This study has two main contributions to the literature; providing a framework for measuring the link between narcissism and financial risk tolerance and providing evidence about “narcissism bias” from an emerging country.
This study examines differentiated financial risk tolerance attitudes between three listing branches within the Australian Securities Exchange’s (ASX) standardised listing environment. Western Australia’s (WA) concentration of earlier‐stage IPOs (51% of all ASX small, (predominately mining) initial public offerings (IPOs)) appears to reflect a localised ‘entrepreneurial’ risk attitude towards smaller, higher‐risk transactions, comparative to New South Wales and Victoria . Our mixed method approach identifies that the concentration of small‐cap, capital raising experiences that are (in)/formally shared through key ‘gatekeepers’, shape locally adopted funding capabilities, business processes, and risk attitudes. Underlying risk attitudes were influenced by the shared confidence in the recognition and management of risk, thereby increasing the propensity to participate in more speculative opportunities, and WA’s presumptive higher risk tolerance.
Bu araştırma bireylerin beslenme alışkanlıklarındaki farklılığın, duygusal yeme davranışının ve vücut kitle indeksinin finansal risk iştahı üzerindeki etkilerini ortaya çıkarmayı amaçlamaktadır. Araştırmanın analizinde kullanılacak veriler anket formları aracılığıyla basit tesadüfi örneklem yöntemi ile elde edilmiştir. Araştırmanın örneklemini Türkiye’de yaşayan 18 yaş ve üzerindeki finansal yatırım yapan ya da finansal yatırım yapabilecek potansiyel yatırımcı adayları oluşturmaktadır. Anket verileri Covid-19 tedbirleri nedeniyle online olarak Nisan-Mayıs 2021 tarihleri arasında 1217 katılımcıya yaptırılmıştır. Çalışmada yer alan analizlerden elde edilen sonuçlara göre, cinsiyetin, medeni durumun, yaş faktörünün, bütçeden yatırım için ayrılan payın, beslenme alışkanlığının, vücut kitle indeksinin ve duygusal yeme davranışının bireysel yatırımcıların finansal risk iştahlarını farklılaştırdığı görülmektedir. Bunun yanında Akdeniz diyet kalite indeksi ile finansal risk iştahı arasında anlamlı ve pozitif; duygusal yeme davranışının finansal risk iştahı üzerinde anlamlı ve negatif yönlü; vücut kitle indeksinin finansal risk iştahı üzerinde ise literatürle paralel olarak anlamlı ve pozitif yönlü bir etkisi olduğu belirlenmiştir. Binomial lojistik regresyon analizi ile kurulan; cinsiyet, medeni hal, bütçeden yatırıma ayrılan pay, aylık gelir seviyesi, Akdeniz diyet kalite indeksine göre beslenme puanları ve vücut kitle indeksinin dahil edildiği modelin anlamlı olduğu bulunmuştur. Cinsiyet, medeni hal, eğitim düzeyi, yaş, gelir seviyesi, vücut kitle indeksi, duygusal yeme davranışı ve finansal risk iştahları dahil edildiğinde katılımcıların dört ayrı kümeye ayrılabilecekleri kümeleme analizi ile belirlenmiştir. Araştırmanın kısıtları, elde edilen sonuçlardan yapılan çıkarımlar ve sonraki çalışmalar için öneriler tartışılmıştır.
It is believed that an individual is rational. He takes financial decisions after thorough evaluation of all available investment alternatives given their risk level and thereby maximizes his wealth. However, Several studies in the recent years have proved that rationality is not the only factor influencing financial decisions of an individual. There are many other factors influencing it. This study seeks to understand impulsive personality trait as a factor affecting financial risk behavior of individuals. It studies degree of risk that an investor can assume in impulsivity. Every individual is impulsive to some extent and this impulsivity affects his decisions including financial decisions. In this study, these impulsive traits are identified and further their impact in financial risk behavior has been studied. It has been found that impulsivity and risk level are positively correlated. Further, no statistically significant difference was found between these impulsive personality traits and varying degrees of risk.
Effects of financial and demographic variables on risk tolerance were estimated for households with an employed respondent in the 1992 Survey of Consumer Finances. Logistic regression analysis showed that female headed households were less likely to be risk tolerant than otherwise similar households with a male head or a married couple. Differences in risk tolerance by gender/marital status, ethnic group and education could be due to differences in understanding of the nature of risk. © 1996, Association for Financial Counseling and Planning Education.
Dollar-cost averaging from cash into stocks involves dividing a cash amount into segments and converting these segments into stocks one at a time over a predetermined period, The practice of dollar-cost averaging is suboptimal according to the framework of standard finance, but the practice is persistent and widespread. The author argues that dollar-cost averaging is consistent with the positive theory of behavioral finance. In this respect, dollar-cost averaging is a phenomenon like the preference for dividends, the reluctance to realize losses, and the belief that stocks of high-quality companies offer high expected returns.
Effects of financial and demographic variables on risk tolerance were estimated for households with an employed respondent in the 1992 Survey of Consumer Finances. Logistic regression analysis showed that female headed households were less likely to be risk tolerant than otherwise similar households with a male head or a married couple. Differences in risk tolerance by gender/marital status, ethnic group and education could be due to differences in understanding of the nature of risk. KEY WORDS: risk tolerance, individual investors, Survey of Consumer Finances Introduction Risk tolerance plays an important role in each household's optimal portfolio decisions. It may also be an important factor in determining many government policies related to consumer risks regarding financial decisions. An investor's ability to handle risks may be related to individual characteristics such as age, time horizon, liquidity needs, portfolio size, income, investment knowledge, and attitude toward price fluctuations (Fredman, 1996). It has been widely perceived that, for financial planners, it is essential to make an effort to determine every investor's risk tolerance level using a subjective measure (Mittra, 1995). However, there may be objective as well as subjective aspects of risk tolerance.
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.
The study examined factors associated with the amount of defined contribution retirement funds using the 1992 Survey of Consumer Finances. Couples with larger amounts of income and smaller amount of nonfinancial assets had larger amounts of defined contribution funds. Also, the funds increased as years of employment and employer contribution rate increased. Households with lower levels of education, less skilled occupations, and with respondents who were unwilling to take financial risks, or who were Black and Hispanic had smaller amounts of defined contribution funds, all other things equal. Most households 30 or more years from retirement had predicted fund levels of zero.
The purpose of the present study is to extend previous research investigating personality factors as determinants of financial risk taking in everyday money matters (e.g., personal investments and household affairs). Type A and Type B subjects were asked to make a series of everyday financial decisions that varied in degree of risk. Type A individuals took greater financial risks than Type B individuals. The results provide additional support for the influence of personality factors in everyday financial risk-taking behavior and demonstrated another area of risk taking associated with the Type A behavior pattern not previously identified.
The effects of questionnaire length on response rate and response bias were examined by conducting a mail survey of 8534 persons taking distance education courses in insurance and financial planning. In 14 replications, persons were randomly assigned to receive a long or short course evaluation questionnaire. Response rate for the short form averaged about 28% higher than for the long form, and was significantly higher in all 14 replications. A measure of course satisfaction appearing on both questionnaires showed no significant differences between the long and short form in 12 of the 14 replications. The results suggested that biased measurement of consumer satisfaction does not necessarily occur on a long questionnaire with a relatively low response rate.
Many people believe the yield enhancement produced by covered options writing is the trading world's version of a free lunch. ...The writer of the call option agrees to sell a portion of the future upside appreciation of a long stock position; in exchange, the writer gains a one-time cash receipt of the option's premium. The only way the seller of the call option can gain from this deal is for a buyer to pay more than the option is worth consistently. However, common sense says this can't always happen. [R. Binnewies, "What's Wrong With Covered Writes," Futures, July 1992, P. 32.]
The authors investigate why 75 percent of U.S. households do not hold stocks despite the equity premium and predictions of expected-utility models. The question is relevant for privatization, asset pricing, and tax progressivity issues. They show that risk aversion per se, heterogeneity of beliefs, habit persistence, time nonseparability, and quantity constraints on borrowing do not account for the phenomenon. A wedge between borrowing and lending rates, and minimum-investment requirements are plausible but empirically weak factors. More promising explanations are inertia and departures from expected-utility maximization. There is also qualified support for nondiversifiable income risk as a contributing factor. Copyright 1995 by Royal Economic Society.
The relation of psychometric standards to behavioral assessment is the principle focus of this book.
I propose to defend the integration of the behavioral and the psychometric approaches, definitively reclaiming, so to speak, for the behavioral approach, the psychometric contribution. The unification of these 2 approaches to psychological assessment is proposed as something required to resolve its theoretical problems and to make its practical interventions more effective. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
An analysis of the 1983 and 1986 Survey of Consumer Finance shows that 40% of U.S. households had a decrease in real net non-housing assets between the two survey periods. This study uses t-test, bivariate and multivariate analyses to investigate household saving behavior and identify factors related to it. Multivariate regression results show that the household's initial net non-housing asset level is the most important factor related to increases in net non-housing assets (saving.) The initial net non-housing asset level in 1983 was negatively related to saving between the two periods. Households with higher income levels had higher predicted saving than those with lower income levels. Households with a high level of risk tolerance saved more than their counterparts. Households that received windfalls between 1983 and 1986 saved a large fraction (87%) and only consumed a small fraction of the windfalls received. A household's saving represents a decision to either increase asset accumulation or to consume less of current income in order to meet household financial goals. Several motives for such a decision can be distinguished: 1) saving for retirement, 2) precautionary saving, and 3) saving for bequests (Sturm, 1983). Other saving motives reported by consumers include savings for children's education, living expenses, purchase or travel plans, and for better life (Xiao & Olson, 1992). Households at different life cycle stages, with different demographic and economic characteristics, should be motivated to save or dissave in accordance with their practical needs and long term financial plans.
A comprehensive set of sixteen measures of willingness to take risks has been developed. This set includes measures from three categories: measures from standardized risky situations having an underlying theory of risk, measures inferred from revealed choices in financial decisions, and measures derived from attitudes. A study of over 500 top-level business executives shows significant relationships within categories, but relatively little relationship across categories. Context differences, especially personal versus business situations and opportunities versus threats, underlie the responses.
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On the basis of the clinical and theoretical literature, 62 items in the domains of security, retention, and power-prestige were generated. Factor analysis yielded five factors: power-prestige, retention-time, distrust, quality, and anxiety. A 29-item Money Attitude Scale (MAS) was developed on the basis of four of these factors. Reliability measures, as well as personality and psychopathological correlations, were determined and discussed.
Households' reported willingness to take financial risk is compured to the riskiness of their po~olios, measured as risky assets to wealth. Overall, their ~or~olio alio~ations are reliable indicators of attitudes toward risk, demonstrating an understanding of their relative level of risk taking. ~u~t~variate regression analysis using ~lu~t~pl~~ imputed data from the 1989 Survey of Consumer Finances indicates that households generally exhibit decreasing relative risk aversion. Further, investment in risky assets is significantly related to socioeconomic factors, attitude toward risk taking, desire to leave an estate, and expectations about the adequacy of Social Security and pension income.
Analysis of decision making under risk has been dominated by expected utility theory, which generally accounts for people's actions. Presents a critique of expected utility theory as a descriptive model of decision making under risk, and argues that common forms of utility theory are not adequate, and proposes an alternative theory of choice under risk called prospect theory. In expected utility theory, utilities of outcomes are weighted by their probabilities. Considers results of responses to various hypothetical decision situations under risk and shows results that violate the tenets of expected utility theory. People overweight outcomes considered certain, relative to outcomes that are merely probable, a situation called the "certainty effect." This effect contributes to risk aversion in choices involving sure gains, and to risk seeking in choices involving sure losses. In choices where gains are replaced by losses, the pattern is called the "reflection effect." People discard components shared by all prospects under consideration, a tendency called the "isolation effect." Also shows that in choice situations, preferences may be altered by different representations of probabilities. Develops an alternative theory of individual decision making under risk, called prospect theory, developed for simple prospects with monetary outcomes and stated probabilities, in which value is given to gains and losses (i.e., changes in wealth or welfare) rather than to final assets, and probabilities are replaced by decision weights. The theory has two phases. The editing phase organizes and reformulates the options to simplify later evaluation and choice. The edited prospects are evaluated and the highest value prospect chosen. Discusses and models this theory, and offers directions for extending prospect theory are offered. (TNM)
One of the most significant and unique features in Kahneman and Tversky's approach to choice under uncertainty is aversion to loss realization. This paper is concerned with two aspects of this feature. First, we place this behavior pattern into a wider theoretical framework concerning a general disposition to sell winners too early and hold losers too long. This framework includes other elements, namely mental accounting, regret aversion, self‐control, and tax considerations. Second, we discuss evidence which suggests that tax considerations alone cannot explain the observed patterns of loss and gain realization, and that the patterns are consistent with a combined effect of tax considerations and the three other elements of our framework. We also show that the concentration of loss realizations in December is not consistent with fully rational behavior, but is consistent with our theory.
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