Financial Risk Tolerance Research Articles

A Comparison of Financial Risk-Tolerance Assessment Methods in Predicting Subsequent Risk Tolerance and Future Portfolio Choices

This study explores the effectiveness of various methods for measuring risk tolerance, with the aim to better understand the risk-taking attitudes and behaviors of financial decision-makers. Using data collected between October 2020 and March 2021, the research investigates three key areas: (a) the stability of risk tolerance over a six-month period, (b) the individual and household characteristics that predict future risk tolerance, and (c) the predictive accuracy of various risk-tolerance assessment methods in relation to portfolio choices made by financial decision-makers. The results show that risk-tolerance scores derived from a psychometrically developed scale provide the most accurate insights into future risk-taking attitudes and portfolio decisions. For those looking for a simple way to assess both current and future risk tolerance and portfolio choices, a stated-preference item can be effective. Although less consistent, a revealed-preference test can also be used to predict risk tolerance and risk-taking behavior. Findings provide guidance for financial decision-makers and financial advisors by comparing the key features of the three primary risk-tolerance assessment methods evaluated in this study. The study also establishes a foundational basis for selecting the most appropriate evaluation approach, based on the variables identified in the findings.

The Usage of Paylater Among College Students: The Role of Self-Control, Hedonistic Conformity, and Family Financial Education

Research aims: The increasing phenomenon of the unwise use of Paylater in society, even among college students, is interesting to review further. This study aims to test the role of self-control and hedonistic conformity with the moderation of family financial education on the use of Paylater by university students.Design/Methodology/Approach: Primary data was obtained through a survey involving 117 respondents who have or are currently using the Paylater service. Furthermore, the data was processed using the Partial Least Squares (PLS) method.Research findings: This study produced the following findings: hedonistic conformity was proven to have a positive effect on the use of Paylater in the full sample and in two sub-samples. This finding is in line with the TPB modification used in this research, hedonic conformity as a proxy for subjective norms has been shown to contribute positively to the use of Paylater among colleege students. Meanwhile, the role of family financial education has not been proven to moderate the regression path of self-control and hedonic conformity on the use of Paylater.Theoretical Contribution/Originality: This study contributes to enriching the literature on personal financial management, especially regarding the use of Paylater based on internal and external factors of students.Practitioners/Policy Implications: These results offer recommendations for personal financial management, especially for university students, to avoid the risk of being trapped by Paylater by paying attention to their social community and prioritizing family financial education.Research Limitations/Implications: Respondents were mostly undergraduate students, so this study cannot explain the dynamics of financial behavior among undergraduate and postgraduate students who have different demographic characteristics. Therefore, future research needs to analyze different sample groups to enrich the scientific perspective. Furthermore, to provide depth of analysis, this study proposes to add other internal aspects of the individual to the TPB theoretical framework (e.g.: perception of usury and financial risk tolerance). Last but not least, regarding the development of indicators from the family financial education variable that does not yet include personal debt management education items, hence this indicator can be added as a proxy for this variable to obtain in-depth measurements.

FINANCIAL LITERACY, RISK TOLERANCE, RETURN, AND INTEREST IN STUDENT INVESTMENT DECISIONS

Investing in the capital market is growing rapidly in Indonesia, as evidenced by the increasing number of investors registered at PT Kustodian Sentral Efek Indonesia and most of them are young investors under 30 years old. The objective of this research is to examine how financial literacy, risk tolerance, return, and interest affect decision-making when it comes to investments. The participants involved in this study are students enrolled in the Bachelor of Accounting program at Udayana University's Faculty of Economics and Business from the graduating classes of 2020 and 2021. The sample was determined using the purposive sampling technique, a sample of 242 respondents was obtained. The data analysis technique uses multiple linear regression analysis. The results of the analysis prove that financial literacy, risk tolerance, return, and interest have a positive effect on students' decision to invest. The results of this study can provide empirical support in behavioral finance theory and theory of planned behavior which explain behaviors related to students' decisions to invest.

A Study on Perception of Mutual Fund Investment

This study explores the performance, risks, and opportunities associated with mutual fund investments, particularly in the Indian market. It evaluates different mutual fund types, analyzing their historical returns and risk metrics to provide investors with data-driven insights. The research examines the factors influencing mutual fund performance, including market volatility, asset management strategies, and economic conditions. Additionally, the study assesses investor behaviour in response to mutual fund performance, emphasizing the role of financial literacy and risk tolerance. The findings suggest that mutual funds offer a viable investment option for wealth creation, with equity-based funds outperforming others over a long-term horizon. However, market risks remain significant, requiring careful management and strategic investment planning

Fostering Future Investors: Analysing Determinants of Stock Market Participation Among Malaysian Students using PLS-SEM

Participation in the stock market is crucial for financial engagement and wealth creation. However, specific population segments, such as students from higher learning institutions, may exhibit lower stock market participation levels. Addressing this issue, this study uses the behavioral finance theory to examine how financial literacy, financial well-being, herding behavior, overconfidence bias, risk tolerance, social interaction, and investment intention influence stock market participation. Data was collected through a self-administered questionnaire distributed to 669 university students in Malaysia aged 17-30 years old. The findings reveal that financial literacy, herding behavior, risk tolerance, and social interaction positively influenced investment intention. The study also discovered that investment intention positively influences stock market participation. This study has made significant contributions to both theory and practice. Theoretically, this study contributes to the literature by confirming the positive relationship between financial literacy and investment intention. This study contributes to the development of more effective interventions and policies that not only educate students about an essential aspect of financial literacy but also prepare them for a financially secure future.

The Psychology of Risk Tolerance: Analyzing the Impact of Psychological Factors on Financial Risk Tolerance

The Psychology of Risk Tolerance: Analyzing the Impact of Psychological Factors on Financial Risk Tolerance

A Conceptual Framework of the Retirement Savings Behavior among Civil Servants in Malaysia

The feasibility of maintaining a comfortable standard of living for civil servants in Malaysia is frequently questioned due to their reliance on pensions as the primary source of retirement funds, which may not suffice to cover the rising retirement costs. To address this issue, civil servants could consider accumulating savings during their working years instead of solely depending on pension disbursements. This academic discourse examines the effect of the independent variables of attitudes towards retirement savings (financial risk tolerance, past behaviours, and subjective norms as psychological elements) and financial considerations (tax incentives) on retirement savings behaviour. Additionally, the research also explores the moderating role of perceived government policy and perceived behavioural control with its antecedents, namely financial literacy, self-control between the independent variables, and retirement savings behaviour among civil servants in Malaysia. Drawing from the extended interactive theory of planned behaviour, amalgamated theories comprising the interactive theory of planned behaviour, rationale choice theory, and the behavioural economic model and existing literature, this article introduces a conceptual framework detailing the determinants influencing the RSB of civil servants in Malaysia. The proposed framework has the potential to benefit various stakeholders, particularly civil servants seeking to prepare adequately for their retirement years.

Impact of Financial Literacy, Risk Tolerance, Usefulness Perception, and Trust Perception on Financial Decision of MSMEs in West Java

This study investigates the impact of financial literacy, risk tolerance, perceived usefulness, and trust perception on the financial decision-making of micro, small, and medium-sized enterprises (MSMEs) in West Java. Using a sample of MSME owners, the study employs multiple regression analysis to explore the relationships between these variables. The findings reveal that financial literacy is the most significant factor influencing financial decision-making, followed by perceived usefulness, risk tolerance, and trust perception. The results underscore the importance of financial education, adoption of beneficial financial tools, and fostering trust in financial institutions for enhancing MSME financial decisions. The study offers practical and theoretical contributions, providing valuable insights for policymakers, financial institutions, and MSMEs. Future research should consider expanding the geographical scope and exploring potential moderating factors in financial decision-making.

Retirement Saving Behaviour: the moderating effect of socio-demographics

This study was conducted to examine the relationship between future time perspective (FTP), financial risk tolerance (FRT), knowledge of financial planning for retirement (KFPR), and retirement saving behaviour (RSB), as well as the moderating effect of demographics, on the relationship between these variables. Data was collected primarily through non-probability judgmental sampling. 312 United Arab Emirates (UAE) individuals working at universities participated in the study. Data analysis was carried out using Smart-PLS and SPSS software packages. It was found that FTP positively influenced RSB, while FRT was insignificant. Moreover, age, gender, nationality, education level, and monthly income played moderating roles in the model. Policymakers should implement policies to include personal finance and financial planning in school and university curricula to improve people's awareness of the importance of retirement planning. Education resources can be wisely channeled to address insufficient retirement planning by regulators and policymakers.

Determinants of financial well-being for emerging adults: the moderating effect of financial risk tolerance

PurposeThis study explores the determinants of financial well-being (FW) among emerging adults and investigates the moderating role of financial risk tolerance in the relationship between financial capability and financial behavior.Design/methodology/approachIn total, 257 useable data were collected from federal and private university students, representing Emirati emerging adults aged 18 to 29. The analysis employed a structural equation model through AMOS 17.0.FindingsStructural modeling results show that gender, monthly expenses, financial literacy and financial socialization influence financial capability and financial capability impacts both financial behavior and FW. Financial risk tolerance moderates the relationship between financial capability and financial behavior.Practical implicationsThis study offers insights useful for policymakers, industry players and educators seeking to address financial literacy, financial capability and financial behavior to enhance the FW of emerging adults.Originality/valueThe study sheds light on the intricate yet comprehensive FW model of emerging adults in a non-Western context. The study also offers a new, more complex view of the function of financial literacy and financial socialization in financial capability. Combining family financial socialization and risk-return theories in an organic viewpoint allows for a more in-depth examination of a critical distinction between the role of literacy and socialization in shaping attitude and behavior and its function as a platform for financial discourse, which can inform how educational efforts and social platforms can be leveraged to improve financial acumen and FW.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-08-2023-0668

Impact of Financial Risk Tolerance on Reinvestment Intention and Investor’s Financial Well-Being: A Narcissistic Personality and Perceived Financial Transparency Approach

This study investigates the impact of monetary gamble tolerance on investment intentions among people, emphasizing the job of monetary information and personality traits. Utilizing a sample of 284 money students, we employed multinomial logistic regression analysis to explore what monetary information means for risk tolerance and investment choices. Our discoveries uncover that people characterized by elevated degrees of extraversion, suitability, openness to experience, and conscientiousness are more disposed to invest, with monetary gamble tolerance significantly mediating these relationships. Specifically, monetary gamble tolerance completely mediates the connection between neuroticism and long haul investment intentions, highlighting the psychological elements of investment conduct. Additionally, monetary information arose as a significant factor impacting short-term and long haul investment intentions, though it showed limited moderating effects between risk tolerance and investment purpose. These insights highlight the importance of improving monetary literacy and understanding personality traits to foster more educated investment choices. The implications of this research extend to monetary supervisors, institutions, and policymakers, emphasizing the need to promote monetary information and chance tolerance as pivotal components in empowering people to take part in investment activities.

Effect of Investment Knowledge on Investment Decision amid COVID-19 Pandemic: The Moderating Role of Financial Risk Tolerance

Effect of Investment Knowledge on Investment Decision amid COVID-19 Pandemic: The Moderating Role of Financial Risk Tolerance

Analysis of Financial Literacy and Overconfidence on Investment Decision with Risk Tolerance Mediation and Gender as Moderator (Case Study of Generation Z Investors in Bandung City)

Financial literacy and overconfidence are important investment considerations due to market complexity. This study examines how Financial Literacy, Overconfidence, Risk Tolerance, and Gender affect investment decisions in Bandung generation Z investors. This study uses a descriptive quantitative methodology to survey 121 Generation Z investors via questionnaire. SEM- PLS provides further evidence that financial literacy positively affects risk tolerance at a 5% significance level. At 5% significance, financial literacy positively affects investing decisions. Risk tolerance also positively affects investing decisions at a 10% significance level. Additionally, there is evidence that the impact of financial literacy on investment decisions is mediated by risk tolerance, with a significance level of 10%. Gender positively influences financial literacy and risk tolerance, with a 5% significance level. In addition, a significance level of 5% indicates that overconfidence has a substantial and advantageous effect on risk tolerance. With a 5% significance threshold, overconfidence positively affects investing decisions. Overconfidence and investing decisions are mediated by risk tolerance at 10%. Lastly, gender moderate overconfidence's effect on risk tolerance with a 5% significance threshold. For overconfidence, gender has minimal impact. The complete analytical framework of this study combines financial knowledge, overconfidence, risk tolerance, and gender to explain individual investing decisions. This study seeks to help investors, particularly generation Z, make more logical and successful investment decisions by improving their financial literacy, regulating their overconfidence, and considering risk tolerance and gender.

Financial Risk Tolerance as a Mediator Between Financial Literacy and Stock Market Participation: Evidence From Single Men and Women

Anchored upon the theory of planned behavior, the study examines a mediator, financial risk tolerance, in the relationship between financial literacy and stock market participation among single men and women. Using data from the 2019 Survey of Consumer Finances, the study uncovers an indirect effect of financial literacy on stock market participation through the mediating role of financial risk tolerance. This effect is observed in both genders, with a more pronounced mediation effect for men than for women. The study suggests that this gender disparity in the mediating mechanism is driven by the stronger correlation between financial risk tolerance and stock market participation among men, as the study finds that men exhibit a higher propensity to invest in the stock market when their financial risk tolerance increases compared with women. Consequently, the study asserts that addressing the gender gap in stock market participation may hinge on empowering women to transform their financial risk tolerance into concrete investment actions.

Influence of personality, biases on financial risk tolerance among retail investors in India

Investors’ personality traits and psychological biases play a crucial role in the decision-making process and risk-taking behavior of investors. The emotional and psychological factors impact the decision-making, giving rise to biases. These biases make investors make irrational decisions, which signifies the need for this study. This study aims to assess investors’ personalities using HEXACO model and its interaction with biases and financial risk tolerance. The data of 530 retail investors in India, who had more than 2 years of investing experience in the stock market, were collected. The study considered the HEXACO model since it captures all dimensions of personality that are not considered in the commonly used Big Five Model (BFM). The result of structural equation modeling and mediation analysis shows that the ‘honesty-humility’ trait significantly affects overconfidence bias. The mediation analysis of biases between traits and financial risk tolerance showed complete, partial, and no mediation effect depending on the nature of prejudice. Clear distinction of personality traits into ‘virtue traits’ and ‘character traits’ can be observed. This clear distinction paves the way for employing the HEXACO model in future studies.

Cryptocurrency investment: Evidence of financial literacy, experience, and risk tolerance

The growing popularity of cryptocurrency as an investment choice among millennials demonstrates their inclination toward digital advancements and openness to exploring diverse investment opportunities. The study examines how financial literacy factors impact experience regret, investment decisions, and risk tolerance, while financial literacy also affects investment decisions, with experience regret and risk tolerance acting as a mediator. The study comprises 295 participants from the millennial demographic in Indonesia who are engaged in cryptocurrency investment. The data collection techniques employed in this study involve non-probability sampling methods through the distribution of questionnaires. The analysis in this study employs Structural Equation Modeling (SEM) in conjunction with Partial Least Squares (PLS) analysis tools. The results of this study suggest that financial literacy positively impacts regret experience, investment decisions, and risk tolerance with the respective sample values of 0.146, 0.397 and 0.449. Additionally, regret experience negatively influences investment decisions with a sample value of –0.385, while risk tolerance positively influences investment decisions with a sample value of 0.198. Financial literacy has a negative impact on investment decisions when regret experience acts as a mediator with a sample value of –0.056, but a positive impact when risk tolerance serves as a mediator with a sample value of 0.089. This complex relationship highlights the importance of considering multiple factors, including financial literacy, regret experience, and risk tolerance, in understanding and predicting investment decisions among individuals, particularly in the context of the millennial generation investing in cryptocurrency in Indonesia.

Determinants of Investments Decisions in Economics and Business Faculty Students at Pelita Bangsa University

The present study endeavors to undertake an in-depth analysis of the impact of financial literacy, overconfidence, and risk tolerance on investment decisions in a structured manner by employing the conceptual framework of prospect theory. The research methodology is based on quantitative research utilizing primary data obtained through the distribution of questionnaires to all the students of the business economics faculty at Pelita Bangsa University. A sample of 101 respondents was used in the research, and the data was processed using the smart-pls 3 software program with a partial least squares approach. The research findings indicate that financial literacy has a significant positive influence on investment decisions, whereas overconfidence has a positive but insignificant influence on investment decisions. Furthermore, risk tolerance has a positive and significant effect on making investment decisions. The most prominent implication of the study is found in the financial literacy section, which suggests that a deeper understanding of financial literacy can lead to more accurate investment decisions. Additionally, an investor's overconfidence and risk tolerance also play a role in making investment decisions.

The Influence of Financial Literacy and Risk Tolerance on Student Investment Decisions with Demographic Factors as Moderating Variables

The Influence of Financial Literacy and Risk Tolerance on Student Investment Decisions with Demographic Factors as Moderating Variables

Analisis Hubungan Literasi Keuangan Investor, Pengetahuan Investor, Risk Tolerance Investor Dan Regret Aversion Bias Investor Dengan Keputusan Investasi

Data of Otoritas Jasa Keuangan (OJK) result that the number of Single Investor Identification (SID) in Indonesia has increased from 2019 to May 2022. Most of these SID investors come from millennials who were born from 1980 to 2000. Investors in Bali SID also experienced an increase, especially in Denpasar City and Badung Regency. The aim of the research is to analyze the relationship between investor of financial literacy, investor knowledge, risk tolerance and regret aversion bias with stock investment decisions in Bali. The sampling technique uses the Slovin formula to obtain a minimum sample size. The data source was obtained from primary data by distributing a 5 Likert scale questionnaire to respondents via Google Form to BNI Securities and Mandiri Securities. Based on the research sample criteria, 129 research samples were obtained. Partial Least Square (PLS) - Structural Equation Modeling (SEM) is used for data analysis. The results are 1) investor financial literacy is significantly positively related to investment decisions, which means hypothesis 1 is accepted, 2) investor knowledge is significantly positively related to investment decisions, which means hypothesis 2 is accepted, 3) investor risk tolerance is significantly positively related to investment decisions so that Hypothesis 3 is accepted, 4) investor regret aversion bias is significantly positively related to investment decisions, which means hypothesis 4 is accepted.

Investigating University Students' Willingness to Invest in Cryptocurrencies in Sri Lanka: Does Financial Risk Tolerance Matter?

Cryptocurrencies have sparked debates globally, leading to diverse reactions from countries regarding their regulation. Sri Lanka remains cautious, as evidenced by its absence in the 2021 Chainalysis Adoption Index and its 58th ranking in 2022, indicating growing user numbers despite warnings from the Central Bank of Sri Lanka. This study uses the Theory of Planned Behavior (TPB) to assess Sri Lankan university students’ intentions to invest in cryptocurrencies, exploring financial risk tolerance as a moderating variable. TPB suggests that attitudes, subjective norms, and perceived behavioral control predict intentions, with financial risk tolerance potentially influencing these intentions. The research collected data from students at top state and private universities in Sri Lanka through structured questionnaires, employing descriptive statistics and structural equation modeling (SEM) for analysis. Results showed that attitudes, subjective norms, and perceived behavioral control significantly influence investment intentions in cryptocurrencies. However, financial risk tolerance did not significantly modify these effects, suggesting that the volatile nature of cryptocurrencies attracts those with higher risk tolerances, rendering the moderating effect of financial risk tolerance negligible. This study offers insights for practitioners and policymakers, highlighting factors influencing cryptocurrency investments among university students and emphasizing the need for informed investment strategies suitable for varying risk tolerances. These findings enhance understanding of investment behavior in emerging markets like Sri Lanka.