Assessing Risk Tolerance

Hanna, Sherman D.; Guillemette, Michael A.; Finke, Michael

doi:10.1093/acprof:oso/9780199829699.003.0005

Cited by 9 publications

(6 citation statements)

References 28 publications

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“…An examination of the descriptive (Barber and Odean, 2001;Yao et al, 2011;Ansari et al, 2023). As stated by earlier studies, the younger generation is more likely to take financial risks than the older generation (Hanna et al, 1998;Al-Tamimi and Kalli, 2009;Yao et al, 2011). The present study also found evidence that respondents aged 28 to 37 were more inclined to take risks than other groups.…”

Section: Discussionsupporting

confidence: 82%

Financial literacy–a regulator of intended investment behaviour: analysing the hypothetical portfolio composition

Rodrigues,

Gopalakrishna

2023

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PurposeThe investment behaviour of individuals has been a major area of interest for several researchers and policymakers due to its great impact on the economy. This study aimed to assess the investment behaviour of individuals in light of their risk appetite and how financial literacy regulates this relationship.Design/methodology/approachA self-administered structured questionnaire was used to collect responses from individuals using purposive and convenience sampling techniques. Individuals were presented with 16 investment avenues widely offered by the Indian financial market to choose from to construct a hypothetical portfolio. The association between risk appetite, financial literacy and the composition of the hypothetical portfolio was analysed using a gologit model.FindingsIncreased risk appetite increased the probability of respondents creating a portfolio with a greater proportion of risky assets and less diversification. Lower levels of financial literacy pointed towards portfolios with traditional and low-risk avenues. The results also revealed a significant moderating impact of financial literacy on risk appetite and the creation of the type of a hypothetical portfolio.Research limitations/implicationsEven though the intended behaviour is a close estimate of actual behaviour, there is a possibility of deviation that cannot be ignored.Originality/valueThe present study provides insights into how individuals make portfolio choices by incorporating risk appetite and diversification factors whilst making investment decisions, thereby expanding the literature from an emerging economy perspective. The role of financial literacy as a moderator has not been studied in the domain of hypothetical portfolio creation in India, which has been empirically explored in the current study.

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Section: Discussionsupporting

confidence: 82%

Financial literacy–a regulator of intended investment behaviour: analysing the hypothetical portfolio composition

Rodrigues,

Gopalakrishna

2023

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“…Besides, it is an elusive concept that appears to be influenced by a number of predisposing factors (Trone, Allbright, & Taylor, 1996) such as demographic, environmental, and psychosocial factors. The extant literature shows that among all the factors, demographic characteristics are the most widely investigated determinants of FRT (e.g., Grable & Lytton, 1999; Grable, 1997; Moreschi, 2011; Wang & Hanna, 1998). In addition, demographic characteristics could be used to differentiate retail investors in terms of FRT and classify them into different FRT categories (Grable & Lytton, 1999).…”

mentioning

confidence: 99%

“…Despite the importance of FRT in financial and investment decision-making, specific theory related to the assessment and prediction of FRT is very limited (Hanna, Gutter, & Fan, 1998), but theories related to non-financial decisions (i.e., use of drug and alcohol) widely exist. For example, risk attitudes and behaviours of an adolescent on the basis of predisposing factors were investigated by Irwin Jr (1993).…”

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confidence: 99%

Relationship between Biopsychosocial Factors and Financial Risk Tolerance: An Empirical Study

Kannadhasan

Aramvalarthan

Mitra

et al. 2016

Vikalpa: The Journal for Decision Makers

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Executive SummaryFinancial risk tolerance (FRT) refers to the retail investors’ willingness to accept the negative changes in the value of investment or an outcome that is adversely different from the expected one. Understanding and assessing FRT plays a crucial role in individual choices about wealth accumulation, portfolio allocation, and all other investment and finance-related decisions, and in achieving financial goals. An advisor has to accurately assess FRT for achieving his/her goal or investor’s goal. Failure to do so leads to the choice of an investment option/portfolio which is inconsistent with one’s FRT, resulting in investor disappointment, that is, unbearable loss to the client. Such a situation may adversely affect the client–advisor relationship.Measuring FRT is challenging as it is a multidimensional attitude. Besides, it is an elusive concept that appears to be influenced by a number of predisposing factors such as demographic, environmental, and psychosocial factors. This study aims to identify the factors that are related to risk tolerance from outside the financial services domain such as psychology, economics, and bio-sociology. It deals most specifically with the relationship between biopsychosocial factors and FRT. Those who are interested in assessing and predicting FRT can move closer to a theoretical account that blends psychological and economic insights and supplements the understanding of risk-taking attitudes and behaviour of retail investors. Such an understanding will help financial advisors, policy makers, and researchers in identifying the determinants of an individual’s FRT to suggest the suitable investment alternatives to their clients.A single cross-sectional survey was conducted among 951 retail investors with various levels of investment experience through a structured questionnaire covering a variety of demographic factors. An analysis of the data collected through the questionnaire indicates that all the three factors—self-esteem, personality type, and sensation seeking—are positively related to FRT. This study adds to the extant literature on psychological determinants of FRT.

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“…For Hunter, risk tolerance may vary depending on the type of decision in which an individual is involved. Corroborating this idea, Hanna et al (2013) pointed out that when a decision involves a small monetary amount, even if some people are generally risk averse, they may appear neutral or even willing to accept the risk.…”

Section: Research Model and Propositionsmentioning

confidence: 99%

Managerial risk taking: a conceptual model for business use

Nobre

Grable

Silva

et al. 2018

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Purpose The purpose of this paper is to establish a conceptual model for managerial risk taking that considers objective measures related to an organization’s characteristics and subjective factors related to a decision maker’s profile. Design/methodology/approach A multilevel process-centered managerial decision-making framework was developed based on previously published risk taking models. The framework accounts for the conflict between agents and principals, as well as the macro- and micro-level environments in which risky decisions are made. Findings The integrative model presented in this paper provides a theoretically robust tool that can be used to further explore the interrelationships among known risk concepts that influence decision making in corporate settings. Research limitations/implications The present research is a conceptual model for managerial risk-taking. Further research is needed to test the linkages and propositions within the model, developing measures of the constructs and empirically testing the relationships among the dimensions of risk. Practical implications The proposed model can help firms define what manager profile is most suitable in terms of a match to the company’s investment strategy. Originality/value This paper is theoretically valuable in describing the relationships among several elements of risk: risk need, risk capacity, risk profile, risk perception, and risk tolerance. Future directions for empirical research are also presented.

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Assessing Risk Tolerance

Cited by 9 publications

References 28 publications

Financial literacy–a regulator of intended investment behaviour: analysing the hypothetical portfolio composition

Financial literacy–a regulator of intended investment behaviour: analysing the hypothetical portfolio composition

Relationship between Biopsychosocial Factors and Financial Risk Tolerance: An Empirical Study

Managerial risk taking: a conceptual model for business use

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