Financial Risk Tolerance Research Articles

Behavioral Investor Types- Determinants of Individual Investors’ Financial Risk Tolerance

Finansal risk toleransı, uzun zamandır yatırımcıların ve araştırmacıların odak noktası olmuştur. Zamanla, bireysel yatırımcıların risk toleransını ölçmek için çeşitli yöntemler geliştirilmiştir ve araştırmacılar risk toleransının belirleyici faktörlerini bulmaya çalışmaktadır. Bu çalışmanın amacı demografik ve sosyoekonomik faktörlerin yatırımcıların risk alma davranışları üzerindeki etkisini belirlemek ve yatırımcıları davranışsal yatırımcı tiplerine ayırmaktır. Bunun için risk toleransını iki şekilde ölçen bir anket kullanılmıştır. Risk toleransı, aktif veya pasif karakteristik özellikler testi ve klasik bir risk toleransı anketi ile ölçülmüştür. İlk olarak, çoklu doğrusal regresyon sonuçları, cinsiyet ve eğitim değişkenlerinin risk toleransını önemli ölçüde belirleyici faktörler olduğunu göstermektedir. İkinci olarak, davranışsal yatırımcı tipleri analizi ile yatırımcıların yatırım davranışlarında çok duygusal olmadıkları ve ağırlıklı olarak bilişsel önyargılara sahip oldukları tespit edilmiştir.

The Influence of Financial Literacy and Financial Interest on The Financial risk Tolerance of Investor in Indonesia

Objective: This study examines the effect of financial literacy and interest on financial risk tolerance. This research is to find out investors' knowledge in investment and also to find out whether investors keep up with news about investment so that it affects the purchase of financial products. Theoretical framework: Every decision that investors make involves financial risk. The amount of tolerance that develops is a critical factor influencing investment decisions and the usage of funds in the capital market. Financial literacy plays a role in demonstrating investor behavior while making investment selections, which might influence financial risk tolerance results. Financial interest indicates how much investors want to be involved in investing. Thus it is vital to understand how much financial risk particular investors are willing to accept. Demographic and socioeconomic variables are investor personality features that can make each investor stand out while making investing decisions. Methods: This research uses a quantitative approach by distributing questionnaires to a sample of experienced investors in Indonesia. Primary data for the study and analysis is collected through a structured questionnaire. The total number of respondents in this study was 184 eligible respondents.Financial risk tolerance as the dependent variable is influenced by independent variables, namely financial literacy and financial interest. There are control variables, namely demographic and social-economic characteristics like age and income. The analysis method used is Structural Equation Modeling analysis. Result & Conclusion: The results are that financial literacy does not affect financial risk tolerance, financial interest affects financial risk tolerance, and age and income do not affect financial risk tolerance. These results show that every investor's interest in emerging news can help investors in choosing investments and planning finances Implications of the research: Based on the results of the research and discussion that has been carried out, financial literacy, age, and income do not affect the financial risk tolerance of individual investors in Indonesia. In contrast, financial interest has a significant positive effect on the financial risk tolerance of individual investors in Indonesia. Future research can investigate investor personality and investor interest in financial well-being. Originality/value: Research on financial behavior is new in Indonesia, especially during a pandemic when many investors in Indonesia are jumping on the financial investment bandwagon. For this reason, this research has originality value in terms of knowing the demographics of Indonesian investors, financial literacy, and financial interest in financial risk tolerance.

Interactions of Financial Risk Tolerance, Internal Fit, External Fit and Personality Traits on Corporate Investment Behaviour

Explaining corporate investment behaviour (CIB) is crucial for companies, investors and policy makers. The relationship between financial risk taking and investment decision has been studied in detail on an individual level. However, an attempt to assess financial risk taking behaviour on an organizational level is not encountered in literature. This study fills the gap by attempting to measure corporate financial risk tolerance (CFRT) with data from 307 production companies and employs hypothesis testing as a confirmatory analysis in a theoretical framework from literature. The dynamics of Big 5 personality traits of owners/top management, such as openness, conscientiousness, extroversion, agreeableness, neuroticism, which is another area of interest in investment theory, is also included in the study. The models to test the hypotheses are proposed by using CFRT and Big 5 as independent variables to explain corporate investment behaviour (CIB). The results of this study indicate that Big 5 traits of top management are not significantly related with CIB, yet CFRT is. Subsequently items impacting CIB and financial risk tolerance identified from literature are classified as internal (IFFI) and external fit for investment (EFFI) and are incorporated as two composite moderating variables. As a result, the model fit improves with both IFFI and EFFI for CFRT, however for Big 5, only conscientiousness trait becomes significant in the moderation of EFFI.

Factors Affecting The Intention to Invest in Cripto Assets Among Indonesian Youth

Main Purpose - This study aims to determine the role of financial risk tolerance in mediating the impact of digital financial literacy, investment experience, and e-payment behavior on intention to invest. Method - This research is a type of explanatory research with a survey method and as many as 215 respondents filled out a questionnaire with valid answers which were then used for analysis. Hypothesis testing uses a structural equation model (SEM) and is processed using Smart PLS-SEM.Main Findings - This research proves that there is a positive and significant role of financial risk tolerance in mediating the impact of digital financial literacy, investment experience, and e-payment behavior on intention to invest. In addition, this study shows that most members of the younger generation have a level of risk tolerance or risk profile that falls into the moderate category or loss-adverse category in the aspects of risk speculation, investment risk, and financial risk evaluation. Theory and Practical Implications - This study provides policy directions for related parties to increase digital finance adoption and financial literacy in the context of financial inclusion. This research reinforces that digital financial literacy is important, especially in terms of digital financial knowledge for young people. Novelty - This study uses the risk tolerance profile variable as a variable that mediates the relationship between digital financial literacy and investment intentions using consumer behavior theory.

ENDOGENEITY TESTING: HEURISTIC BEHAVIOR AS A REFERENCE FOR BEGINNING INVESTORS IN MAKING INVESTMENT DECISIONS

This study aims to examine the tendency of endogeneity on heuristic behavior as a reference for novice investors in making investment decisions. Endogeneity is a deviation in OLS modeling which shows that there is still a correlation between the independent variables in the model and the error, causing biased results. The issue of endogeneity is an interesting aspect of current research, and still creates pros and cons for researchers in the fields of finance and econometrics. In this study, 158 respondents were used who were novice investors. The selection of respondents was done randomly. In this study, four categories of variables were used, namely the dependent variable, namely investment decisions, the independent variable, namely financial risk tolerance, endogenous heuristic behavior variables and financial literacy instrument variables. The analysis method is carried out using ivregress 2sls which is processed with Stata. The test results found that endogeneity symptoms were detected in heuristic behavior of novice investors. This behavior appears and influences investment decisions because it is preceded by financial literacy, which rejects the insights that investors have about financial science or investment.

Examining the Association Between Financial Education and Financial Risk Tolerance

An individual’s financial risk tolerance (FRT) has an important role in their financial decisions. Hence, it is a recent topic of interest. Research shows a strong relationship between financial literacy and risk aversion. Little research, however, has been done investigating the correlation between financial education and FRT. In this paper, it is proposed that financial education and FRT may be positively correlated. Since risk preferences are an innate characteristic and can also be motivated by personal and psychological attributes, the relationship between financial education and FRT may not be causal. Results obtained from analyzing data from the 2021 NFCS dataset through multivariate analysis show that financial education courses are positively correlated with reporting higher measures of financial risk tolerance for college educated individuals and for financially low literate individuals who have not attended college. These results hold even after controlling for financial literacy and a myriad of other background variables. JEL Codes: D14, G00, D81, A20

Development of a Responsible Financial Behaviors Index

Bridging the gap between theory and practice, this study yielded a reliable and valid measure for responsible financial behaviors with the potential to serve practitioners when working with consumers. This research utilized Bandura’s Triadic Model of Causation (Bandura, 1985) to investigate and predict responsible financial behaviors. Data from the 2009, 2012, and 2018 National Financial Capability Study surveys were used to construct a responsible financial behaviors index with five subconstructs for time horizon, money management, risk management, debt awareness, and ownership of baseline financial accounts. Results from a series of regression models identified consistent relationships between the index and variables categorized as cognitive factors (financial knowledge, financial self-efficacy, and financial risk tolerance) and background characteristics (educational attainment, income, and marital status).

A Bibliometric Review ofJournal of Financial Counseling and PlanningBetween 1990 and 2022

In 1990, the Journal of Financial Counseling and Planning (JFCP) was established. The journal publishes academic research on consumer financial decision-making, financial education, counseling, and planning. This article reviews the journal’s contents published during the period 1990–2022. It analyzes JFCP’s publication trends, citation statistics, significant themes, authors’ collaborations, keywords, and contributions to the literature of consumer finance. Most studies employed Life Cycle Hypothesis and Expected Utility Theory. JFCP publishes mostly US-based quantitative empirical studies. JFCP’s eight knowledge themes are credit card behavior; financial literacy and financial behavior; financial risk tolerance; financial education, and financial behavior; financial distress and financial self-efficacy; financial well-being; workplace financial education and financial help-seeking behavior, and JFCP’s retrospection. Among JFCP’s articles, the most used keywords selected by authors are “survey of consumer finances” and “financial literacy.” This study also describes the author, country, and concept networks.

Subjective and Objective Financial Knowledge and Their Associations with Financial Risk Tolerance

This article examines the relationship between the financial risk-taking behavior of individual investors and their subjective and objective knowledge. The data come from multiple waves of surveys conducted by the National Financial Capability Study between 2009 and 2018. We hypothesize that subjective knowledge will have a greater association with risk tolerance than objective knowledge of individual investors. Regression models are estimated with least squares as well as with the ordered logit method. Estimation results show that individual investors’ risk tolerance behavior is associated more with their subjective knowledge than their objective knowledge. This is true in all four surveys separately and in the combined sample. Additionally, as hypothesized, the relative influence of subjective knowledge on risk tolerance, compared to objective knowledge, increases as the survey periods move further away from the financial recession of 2007–2008. This article has important implications for behavioral and personal finance researchers, financial advisors, and regulators.

The Influence of Financial Literacy, Risk Tolerance, and Demographic Factors on Investment Decision among Generation Z and Millennial in Greater Jakarta and Greater Bandung

Financial services and products are getting more complex and difficult to comprehend for many consumers. Consumers with limited financial literacy may struggle to make wise decisions about their financial (investment) decisions. Financial literacy capital market in Indonesia still in lowest level. In addition, low financial literacy will increase the number of illegal investments. Throughout 2022, the Indonesian police have handled 28 illegal investment cases with a total loss of 31.4 trillion to the community. The victim also came from varied backgrounds, men and women, young and old, from those who did not go to school until undergraduates, from low-income to high. The purpose of this study is to determine the relationship between financial literacy, risk tolerance, and demographic factors toward investment decisions among Generation Z and millennials in Greater Jakarta and Greater Bandung. Variable financial literacy used in this study includes financial knowledge, behavior, and attitude. An online questionnaire was conducted and there were 216 respondents who participated in this research. A quantitative approach was used to analyze the data collected using multiple linear regression through SPSS. The study found that financial knowledge, financial behavior, financial attitude, age, and occupation have a significant effect on investment decisions. Meanwhile, risk tolerance, gender, and income do not have a significant effect on investment decision.

The Influence of Financial Literacy, Risk Tolerance, and Demographic Factors on Investment Decision among Generation Z and Millennial in Greater Jakarta and Greater Bandung

The Influence of Financial Literacy, Risk Tolerance, and Demographic Factors on Investment Decision among Generation Z and Millennial in Greater Jakarta and Greater Bandung

The direct and indirect effects of financial socialization and psychological characteristics on young professionals' personal financial management behavior

PurposePrior work expresses concern about young people's rising debt and lack of financial preparedness. This study focuses on how financial socialization and psychological characteristics affect the personal financial management behavior (PFMB) of young professionals in India. The authors examine both the direct effect of these factors and the indirect effects through financial literacy and aforementioned psychological characteristics as mediators.Design/methodology/approachThe authors develop a conceptual framework based on the extant literature and empirically test its hypotheses employing partial least squares structural equation modelling (PLS-SEM).FindingsAttitude towards money, financial self-efficacy, financial risk tolerance, financial socialization through parental direct teaching and peers, and media are all positively associated with young professionals' PFMB, whereas external locus of control and procrastination are negatively associated with their PFMB. Almost all psychological characteristics partially mediate the association between financial socialization and PFMB. Finally, financial literacy plays a partially mediating role in the association between procrastination and PFMB as well as between financial socialization and PFMB.Practical implicationsThis study helps regulators and policymakers understand PFMB among young professionals. Interventions should build on the positive role of financial socialization, cultivating a good attitude towards money and financial self-efficacy, and reducing reliance on an external locus of control and procrastination. This study also helps policymakers and financial educators develop societally beneficial personal finance programs.Originality/valueThis research investigates social, psychological and cognitive characteristics in a comprehensive framework to further the authors’ understanding of the topic of PFMB.

Investigating the Direct Effect of Financial Knowledge, Financial Stress, Financial Risk Tolerance and Financial Socialization on the Financial Behavior and Financial Well-Being of Individuals in Iran

Investigating the Direct Effect of Financial Knowledge, Financial Stress, Financial Risk Tolerance and Financial Socialization on the Financial Behavior and Financial Well-Being of Individuals in Iran

The salience of informed risk: an experimental analysis

PurposeExpanding on the real-world financial market framework and considering the current market turmoil, with cryptocurrencies (where contracts for difference (CFDs) are extremely common) (Hasso et al., 2019) displaying unprecedented volatility, the authors aim to test in an online laboratory setting whether displaying a risk warning message is truly effective in reducing the level of risk taken and whether the placement of this method makes a difference.Design/methodology/approachTo explore the impact of risk disclosure framing on risk-taking behavior, the authors conducted an online pair-wise lottery choice experiment. In addition to manipulating risk awareness through the presence or absence of risk warning messages of varying intensity, the authors also considered dynamic inconsistency, cognitive ability and questionnaire-based financial risk tolerance (FRT) scores. The authors aimed to identify potential relationships between these variables and experimentally elicited risk aversion. The authors' study offers valuable insights into the complex nature of risky decision-making and sheds light on the importance of considering dynamic inconsistency in addition to risk awareness and aversion.FindingsThe authors' results provide statistical evidence for the efficacy of informative and very salient messages in mitigating risky decision, hinting at several policy implications. The authors also provide some statistical evidence in support of the relationship between cognitive abilities and risk preferences. The authors detect that individual with low cognitive abilities scores display great risk aversion.Originality/valueThis study investigates the impact of risk warning messages on investment decisions in an online laboratory setting – a unique approach. However, the authors go beyond this and also examine the potential influence of dynamic inconsistency on decision-making, adding further value to the literature on this topic. To ensure a comprehensive understanding of the participants, the authors collect data on cognitive ability and FRT using questionnaires. This study provides a simple and cost-effective framework that can be easily replicated in future research – a valuable contribution to the field.

ANALYSIS OF THE INFLUENCE OF PSYCHOLOGICAL, SOCIODEMOGRAPHIC, AND FINANCIAL LITERACY FACTORS ON CHILDREN EDUCATION FUND PLANNING FOR INDONESIAN MILLENIAL PARENTS

Education is very important for children's future. It is the basic capital for preparing human quality. That is why setting up a children's education fund is one of the most important tasks for parents. However, this is a challenge for millennial parents because of the high cost of education in Indonesia. The purpose of this study is to analyze psychological and sociodemographic factors related to planning children's education funds. This study examined 415 Indonesian millennial parents who were selected by accidental sampling technique and tested using the PLS SEM statistical analysis method. This study uses a 95% confidence level, ???? = 5%. The results of the research on psychological factors namely future time perspective and financial risk tolerance have a positive and significant effect on children education funds planning. Sociodemographic factors namely education has a negative and significant effect on children education funds planning. While sociodemographic factors namely income has a positive but not significant effect on children education funds planning. Future time perspective has a positive and significant impact on financial literacy. Education has a negative and insignificant effect on financial literacy, while income has a positive and not significant effect. Financial literacy has succeeded in mediating the effect of future time perspective on children education funds planning, while financial literacy has not succeeded in mediating the effect of education and income on children education funds planning. While sociodemographic factors namely income has a positive but not significant effect on children education funds planning. Future time perspective has a positive and significant impact on financial literacy. Financial literacy has succeeded in mediating the effect of future time perspective on children education financial planning, while financial literacy has not succeeded in mediating the effect of education and income on children's education financial planning. while income has a positive and not significant effect. Financial literacy has succeeded in mediating the effect of future time perspective on children education funds planning, while financial literacy has not succeeded in mediating the effect of education and income on children education financial planning.

Examining the Relationship Between Financial Knowledge, Risk Tolerance, and Past Behavioural Bias on Investors Actual Investment Behavior

Purpose: The present study aims to determine the factors influencing investment intention and actual investment behaviour in mutual funds. The study uses financial knowledge and risk tolerance as moderators and past behavioral bias as a mediator. Theoretical framework: The Theory of Planned Behaviour (TPB) appears to have become a very useful model for predicting various investing behaviours. Therefore, the present utilises the TPB model to analyse mutual fund investment behaviour. Design/methodology/approach: The convenience sampling method was used to collect respondents from a population of 582 retail investors through questionnaire survey This research used partial least squares structural equation modelling (PLS-SEM) as the main method of data analysis using SmartPLS 4. Findings: Attitude, financial knowledge, and risk tolerance emerged as the most important determinants of mutual fund investment intention. This highlights the significance of creating favorable conditions in terms of accessibility, which may encourage and ease the decision of investors to purchase mutual funds. Research, Practical & Social implications: Marketers can explain how their mutual fund offerings would help both the market and investors. Marketers should prioritize proper communication about the benefits of mutual funds to investors, as communication is regarded as a critical tool for the success of mutual fund products. Originality/value: To understand individual investors' intentions to engage in mutual funds, the impact of attitude, subjective norms, and perceived behavioural control on investor intentions and, actual investment behaviour were hypothesised and analysed, financial knowledge and risk tolerance functioning as moderators. Additionally, past behavioural bias is a mediator.

A Study of Financial Behavior Among Urban Older Chinese

Older Malaysian Chinese has one of the highest mean incomes among the other ethnicity in Malaysia. As these individuals grow older, their savings and retirement fund will dwindle and are insufficient for their spending. As a result, these individuals will seek to earn extra income from investment so that they could save more for their children and lifetime care. However, investment is subject to risk. Thus, this study examines the effect of gender, age, financial satisfaction, financial knowledge, and bequest motives on older Malaysian Chinese financial risk tolerance. In this study, the target sample was those Chinese aged 50 or older residing in Selangor, Malaysia. The data were collected through face-to-face interviews with the purposive sampling method. As a result, the survey covered a sample of 263 completed cases. The multiple regression analysis shows that males with optimal financial knowledge, altruistic personality (unselfish and concern for other people), and variables positively influence older Malaysian Chinese’s financial risk tolerance (risk-taker). At the same time, ages and financial satisfaction variables are negative and significantly influence financial risk tolerance (risk- averse). Lastly, these findings may contribute to the relevant authority, such as retirement fund providers, to formulate a proper long-term plan to ensure Chinese older Malaysians’ individual and family financial stress during retirement.

Factors that Influence Preferences for Defined Benefit Plans Versus Defined Contribution Plans

The majority of public sector employees in the United States still have access to defined benefit (DB) retirement plans, with some retaining a choice between a defined benefit plan and a defined contribution (DC) plan when hired. This research was based on a survey assessing individuals’ financial literacy, risk tolerance, and time orientation and the influence those three variables had on preferences for DB versus DC plans. Greater financial skill and risk tolerance were associated with a preference for DC plans, while a time orientation focused on the present was associated with a preference for DB plans. This research could benefit employers as they determine retirement plan options that they choose to offer employees. Employers who offer both plan types may benefit from informing employees about the factors associated with preferences for each plan type as greater awareness of such factors could improve employee satisfaction and increase retention. JEL Codes: J32, H75, G53, G32

ANALISIS PENGARUH LITERASI KEUANGAN DAN RISK TOLERANCE TERHADAP KEPUTUSAN INVESTASI (STUDI KASUS PADA KELOMPOK STUDI PASAR MODAL (KSPM) UNIVERSITAS MATARAM)

The purpose of this study is to find out the effect of financial literacy and risk tolerance on investment decisions of members of the Mataram University Capital Market Study Group (KSPM). The type of research used in this study is associative research. The data collection method used is a census method using primary data collected directly from respondents using questionnaires. The population in this study is all members of the Mataram University Capital Market Study Group (KSPM). The sample in this study was determined by a saturated sampling technique in which all 42 members of the population were sampled. The data analysis method used is the Partial Least Square (PLS) technique using the SmartPLS Partial Least Square (PLS) software application. The analysis results show that: (1) financial literacy has a positive and significant effect on investment decisions, and (2) risk tolerance has a positive but insignificant effect on investment decisions.

Generation Z’s Financial Behaviour: The Role of Islamic Financial Literacy

Purpose — This research aims to examine the effect of family communication patterns on Islamic financial literacy (IFL) and risk tolerance of Generation Z (Gen Z) in Indonesia. It also examines the link between IFL, risk tolerance and financial behaviour. Finally, it highlights the moderating impact of IFL on the link between risk tolerance and financial behaviour. Design/Methodology/Approach — This study used Muslim members of Gen Z in West Sumatra Indonesia who were born between 1995 and 2001 as the population. This study collected 668 responses in two months. After some preliminary tests, such as missing value and normality test, it employed 571 usable responses as the sample. Purposive sampling was conducted and variance-based structural equation model-partial least square (SEM-PLS) was employed as the method for data analysis. Findings — The results show that family communication patterns, both conformity and conversation orientation, positively and significantly influence IFL and risk tolerance. IFL has a positive and significant impact on risk tolerance and financial behaviour. Surprisingly, IFL also moderates the link between risk tolerance and financial behaviour positively and significantly. Finally, risk tolerance significantly affects financial behaviour. Originality/Value — This research makes three theoretical contributions. First, it provides a better understanding and a more complex model of the relationship between IFL with its antecedents such as family communication patterns and also with its consequences, including risk tolerance and financial behaviour. Second, it reveals that IFL affects Gen Z’s financial behaviour significantly—an aspect which is neglected in previous research. Third, it has expanded the scope of prior studies by addressing IFL as a moderator of the link between risk tolerance and Gen Z’s financial behaviour. Research Limitations/Implications — Even though this study has carried out Harman’s single-factor analysis to anticipate a common method bias, it faces the common method bias problem due to the cross-sectional nature of the study. Secondly, the study focuses on Gen Z, which means that most of the respondents are students and their financial behaviour is still affected by the decisions of their parents. Practical Implications — This study has some contributions for decision makers such as Otoritas Jasa Kewangan (Financial Services Authority) and management of Islamic banks and financial institutions. First, to increase Gen Z’s IFL, the decision makers have to educate the parents using the two-way communication orientation method. Second, the financial behaviour of Gen Z is influenced by financial literacy and risk tolerance; hence, decision makers such as the government and society have to educate Gen Z on IFL and inform them about financial risks which influence their risk tolerance when conducting financial activities. Article Classification — Research paper