Do sociodemographic factors have influence on risk tolerance level of stock market investors? An analysis from a developing country perspective

Abstract

PurposeThe study attempts to assess the relationship between sociodemographic factors and the risk tolerance level of stock market investors reflected by their trading behavior from the perspective of developing market economy.Design/methodology/approachThe study collected data from a survey on capital market investors in Bangladesh. Portfolio beta has been used as a dependent variable to measure the risk tolerance level where total 11 sociodemographic factors have been used as independent variables.FindingsAmong all study variables, three sociodemographic factors are found to be significant in differentiating the risk tolerance level of the stock market investors. The author finds that the risk tolerance level of stock market investors significantly varies according to marital status, family size and financial responsibility.Practical implicationsAs sociodemographic characteristics provide a basis in assessing the investor risk tolerance level in the context of developing market economies, the study suggests that stock market related policy and investment management planning process should be formulated by incorporating behavioral aspects of the retail investors.Originality/valueThis study has the potential to contribute to the behavioral finance literature by showing how and at what extent sociodemographic factors may influence the risk tolerance level of stock market investors in developing countries, where sociodemographic factors are considered to be more dominating than the normative portfolio selection procedure because of lacking in investors' financial literacy and due to the presence of a weak regulatory as well as institutional framework. Further, apart from identifying and comprehensively incorporating all possible sociodemographic factors, this study uses portfolio beta as a new objective measure for financial risk tolerance, which overcomes the problem of subjective and other risk tolerance measurement in the existing literature.

Influence of bull and bear market phase on financial risk tolerance of urban individual investors in an emerging economy

“…(2015) argue that due to the higher retirement saving option, employed people are less likely to go for risky investment. In contrast, more recently, Muktadir-Al-Mukit (2020) suggests that occupation does not play any role in risk-taking attitude of investors. This is not surprising as due to the poor economic condition of developing countries, people tend to engage in multiple type of jobs simultaneously, which may cause variation in their risk-taking behavior Cooley and Smith, 1998).…”

“…Studies suggest that internal factors such as age, marital status, gender affect risk tolerance of investors (Finke and Guillemette, 2018; Grable et al. , 2019; Hemrajani and Sharma, 2020; Muktadir-Al-Mukit, 2020). However, empirical evidence about internal factors influencing risk tolerance pattern is not consistently converging in these studies.…”

“…Second, we report PWE of retail investors as important internal factor influencing risk tolerance, which in turn is also influenced by the market phases. Earlier studies have used occupation and employability (Bucciol and Zarri, 2017; Muktadir-Al-Mukit, 2020) and trading experience (Diacon, 2004; Feng and Seasholes, 2005) but not explored PWE years of investors influencing their risk tolerance. As emerging economies witness greater participation of younger population at work, this finding becomes critical in view of increasing equity participation.…”

Factors Influencing Financial Risk Tolerance: A Review

“…al, 2020) Higher income, higher education level, and older age result in higher FRT. Bangladesh (Muktadir-Al-Mukit, 2020) Marital status and family size explain FRT for the stock market. Tamilnadu, India (Rajeshkumar & Kasilingam, 2017) Gender, religion, age, occupation, marital status, dependents, number of earning members, and type of family explain FRT.…”

Yatirimci Ri̇sk Toleransi Ve Pi̇yasa Li̇ki̇di̇tesi̇ İli̇şki̇si̇: Seçi̇li̇ Pi̇yasalardan Bulgular

“…The risk tolerance changes with some demographical factors such as age, sexuality, marital status, education level, income level, cultural factors, sexual equaility and social norms (Usul et al, 2002;Fan and Xiao, 2006;Kahyaoğlu, 2011;Jain and Mandot, 2012;Frinjs et al, 2013;Bannier and Neubert, 2016;Barasinska and Schafer, 2017;Muktadir-Al-Mukit, 2020). Some of those variables are used to determine the countries' development levels by International Monetary Fund (IMF).…”