Investment Preference, Risk Perception, and Portfolio Choices under Different Socio-Economic Status: Some Experimental Evidences from Individual Investors

Abstract

Identifying key factors influencing individual investor’s decision to make portfolio choices is of importance to understand their heterogeneous investment behavior, however previous research based on experimental evidence is extremely space especially in terms of perspective from individual’s perceptions on risk tolerance and risk perception. This paper explores individual investor’s preference for portfolio choices and empirically investigates impacts of risk tolerance and risk perception on their investment decision. Specifically we decompose socio-economic stats difference in investment preference for portfolio choices with respect to investor’s gender, age, income level, marital status, education level and household income level. Using conjoint analysis on investment experiments to obtain some evidences from a sample of 285 respondents in survey, our results indicate that investor’s decisions to make their portfolio choices are significantly and negatively related to personal labor income level, female and married investors, and square of overall scores on risk perception while however the case is positively associated with their household income level and the level of risk tolerance. This finding implicates that investor with higher risk tolerance level shows higher likelihood to make their investment decision on portfolio choices. Moreover, individual investors would like to make the investment decision on portfolio choices with higher weights of bond investment and saving. Interestingly, they do not prefer to make portfolio choices with international portfolios and short-run investment horizon. Besides, it is found that male investor demonstrates much preference on portfolio choices with higher percentage of total return.