Risk Tolerance Research Articles

More than one way to peel an orange : A fresh approach to building an effective lease administration function

This paper explores the evolving landscape of lease administration, prompted by shifts in labour markets, growing complexities of financial reporting for lease agreements and the emergence of robust lease management technology. Lease administration emerges as a critical business function, with a focus on managing lease data, ensuring accurate rent payments and navigating compliance and landlord relationships, while providing realtime reporting capability for business stakeholders. In addition, lease administrators transition from labour-intensive manual processes to a more analytical and technical approach. Given the altered environment in lease management requirements, tools and skill sets, now is an ideal juncture for companies to assess their current lease administration operating model, and the paper introduces a perfect assessment tool. The Lease Administration Framework, a proactive lease administration management system, highlights strategies and decisions for managing a company’s real estate portfolio while considering the use of in-house teams and outsourced service providers. The paper advocates for a tailored approach to be aligned with organisational needs, while emphasising the importance of evaluating talent, technology and risk tolerance in the decision-making process. By following the framework, corporate real estate (CRE) leaders can ensure financial prudence, gain the agility to allocate resources strategically, invest in growth initiatives and weather economic uncertainties.

Insights into decision‐maker's perceptions of good versus bad decisions in emergency services—A modified Delphi study

AbstractDecision‐making in emergency situations, such as those faced by fire, police, and health service personnel, presents unique challenges due to the high‐stakes and time‐pressured environment. Here we aim to better understand what emergency responders regard as constituting ‘good’ and ‘bad’ decisions in emergency situations. We administered a modified Delphi study, eliciting opinions from decision‐makers across all these sectors towards consensus around the key elements of good and bad decision‐making. Participants were first asked to define what makes a ‘good’ and a ‘bad’ decision, and subsequently to identify the top five most important elements of each. While consensus was not found, important insights were identified that can assist improve the standard of decision making at all levels of emergency response and management. We observed (i) a lack of a common understanding between participants of what a decision is, and how a decision differs from pre‐decision and postdecision components; (ii) responses varied according to whether a free text description or the identification of separate elements was requested; (iii) respondents valued ‘goodness’ across different and at times unrelated components a scaled measure of decision quality as opposed to a binary evaluation of ‘rightness’; and (iv) pre‐ and postdecision elements are considered more important than the decision itself when determining the quality of a decision. To address the issues highlighted by the study we recommend improvements in training, and improvements to organization doctrine related to decision making, risk tolerance, assessment of decision quality and development of intent‐based or principle‐based operational guidance. Ultimately, incident controllers from all services must remain cognizant that they will face considerable scrutiny if they cannot explain how they arrived at the decision they made.

Properties of risk aversion estimated from portfolio weights

While risk tolerance is often elicited using questionnaire-based instruments, in this paper, we evaluate the merits of an inversion-based technique, wherein risk aversion parameters are inferred from an individual’s portfolio holdings and a sequence of realized returns. We obtain expressions for the finite sample and asymptotic variance of the estimated risk aversion parameter under the inversion approach with a single risky asset, demonstrating that confidence intervals for parameter estimates are relatively wide. Extending the analysis, we show that inferring risk aversion from multiple risky assets does not typically serve to reduce the estimated parameter variance, but rather propagates estimation error.

Comparison of Markowitz Model and Single Index Model with ESG Factors Involved

ESG considerations have become increasingly prominent within the realms of investor and corporate decision-making, underscoring the importance of employing robust methodologies for incorporating ESG factors into portfolio construction. This study aims to leverage the Markowitz Model and Single Index Model to construct portfolios utilizing a selection of 10 stocks, evaluating their applicability across various conditions, particularly investors' risk tolerance levels. Utilizing the solver function within Microsoft Excel, graphical representations will be generated under four distinct constraints, facilitating comparisons based on both graphical depictions and accompanying data analysis. The findings reveal that, under specified conditions, the two models exhibit negligible differences, while highlighting the significant role of ESG constraints in portfolio construction. Nonetheless, given the distinct assumptions and conditions underlying each model's calculations, investors retain the flexibility to choose either approach for portfolio analysis. This research underscores the impact of ESG factors on asset allocation outcomes within both models, offering valuable insights into ESG investing practices and the comparative performances of the Markowitz Model and the Single Index Model.

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

Research on the Investment Portfolio in Technology and Consumer Goods Industries

This research investigates investment portfolios in the U.S. technology and consumer goods sectors, employing Modern Portfolio Theory (MPT) and the Markowitz Model to analyze and compare their risk-return profiles. The study highlights that the technology sector demonstrates a high-risk and high-return profile, making it attractive for risk-seeking investors aiming for significant gains amidst market volatility. In contrast, the consumer goods sector, with lower volatility, appeals to risk-averse investors who prefer stable and predictable returns. Key findings strongly emphasize the importance of aligning investment choices with individual investor preferences, illustrating how specific industry characteristics can influence investment strategies. The research suggests that investment success is considerably enhanced when portfolios are tailored to match individual risk tolerance and investment goals. This strategic approach provides a robust framework for guiding investors to make informed decisions that reflect their personal preferences and financial objectives, thereby helping them navigate market complexities and enhance portfolio performance.

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.

T Risk Tolerance, Perceived Usefulness, and Intention to Subscribe to Digital Unit Trust

T Risk Tolerance, Perceived Usefulness, and Intention to Subscribe to Digital Unit Trust

Strategic risk management in financial institutions: Ensuring robust regulatory compliance

Strategic risk management in financial institutions is a critical component for ensuring robust regulatory compliance and maintaining financial stability. This review explores the multifaceted nature of strategic risk management and its importance in the dynamic regulatory landscape of the financial sector. It delves into the fundamental components of risk management, including risk identification, assessment, mitigation, and monitoring, highlighting how these processes help institutions navigate the complexities of regulatory requirements. The discussion encompasses various types of risks faced by financial institutions, such as credit, market, operational, liquidity, and compliance risks, illustrating the need for comprehensive risk management frameworks. The review also reviews key regulatory frameworks, including Basel III, the Dodd-Frank Act, and guidelines from the European Banking Authority, emphasizing their impact on capital requirements, liquidity standards, and governance expectations. A robust risk management framework integrates compliance efforts with business strategy, ensuring that institutions are not only adhering to regulatory mandates but also aligning their risk appetite and tolerance with their strategic objectives. The role of technology, particularly in data analytics, real-time risk monitoring, and cybersecurity, is examined as a crucial enabler for effective risk management and compliance. Best practices for enhancing regulatory compliance are outlined, including continuous monitoring, regular audits, and scenario analysis. Challenges such as evolving regulations, financial product complexity, and globalization are addressed, with recommendations for adaptive strategies and industry collaboration. Through case studies, the review provides insights into successful risk management implementations and lessons learned from compliance failures. The review underscores the importance of strategic risk management in fortifying regulatory compliance and suggests future trends, such as advanced AI and machine learning, which could further revolutionize the approach to risk management in financial institutions. Keywords: Strategic Risk, Financial Institution, Regulatory, Compliance

Pricing electricity from blue hydrogen to mitigate the energy rebound effect: A case study in agriculture and livestock

As the world's second largest producer of natural gas, Iran relies heavily on natural gas for 70% of its energy needs. There are, however, challenges associated with energy supply in remote regions attached to the gas pipeline network, particularly during the cold season when fuel oil is required for heating and energy provisioning. To address this issue, this research proposes the use of alternative energy sources, such as hydrogen, for non-residential energy consumption, including agriculture and livestock. A key objective of this study is to develop an optimization model for the generation of electricity from hydrogen resources, as well as formulate a robust strategy to assist electricity producers in maximizing their profits. Using this model, producers are able to set prices in accordance with their risk tolerance and present them to the market, thus mitigating price fluctuations. In the targeted sectors, the results indicate that appropriate pricing models can prevent rebound effects. Specifically, the implementation of this model can reduce natural gas consumption by up to 20% and fuel oil usage by 15% during peak seasons. Additionally, the optimal pricing strategy can lead to a 10% reduction in greenhouse gas emissions. The results of this research provide stable and reliable solutions to the energy supply challenges in these regions, thus making the energy market more resilient and environmentally friendly.

The impact of violations of expected utility theory on choices in the face of multiple risks

Use of preference information to infer risk tolerance has increased in recent years as a way to inform benefit-risk evaluations in regulatory and medical decision making. However, a framework for the measurement of tolerance for multiple uncertain outcomes has not been formalized when choices do not comply with expected utility theory (EUT). We developed a formal analytic framework for the measurement of preferences through choices under uncertainty with multiple risks. Based on the analytic framework, we find that violations of EUT can lead to interaction effects between uncertain outcomes, not just nonlinearities in the disutility of risks. Our framework also implies that measures of risk tolerance derived from utility, such as maximum-acceptable risk, must consider all relevant risks jointly if their effect on choices is expected to violate EUT. Somewhat reassuringly, however, we find that cross-outcome effects are expected to be negligible when the probabilities of other outcomes approach certainty. Finally, we identify a simple test that can help evaluate whether preferences for one uncertain outcome are affected by other uncertain outcomes.

Does digitalization always benefit cultural, sports, and tourism enterprises quality? Unveiling the inverted U-shaped relationship from a resource and capability perspective

The impact of digitalization on the high-quality development of “technology-sparse” but “labor-intensive” cultural, sports, and tourism enterprises may not follow a linear path. Therefore, there is an urgent need to explore the mechanism by which digitalization contributes to the integrated high-quality development of enterprises from the perspective of resources and capabilities. The majority of studies focus on the theoretical realm, while challenges in acquiring crucial data indicators constrain the advancement of empirical inquiries. This study creates a lexicon of digitized features encompassing strategic, technical, and application layers within cultural, sports, and tourism enterprises. The MD&A texts from annual reports were processed using the TF-IDF algorithm, which is based on machine learning, to assess the level of digitization. Additionally, integration development was incorporated into the evaluation system for high-quality development of cultural, sports, and tourism enterprises via social network analysis. In terms of theoretical contributions, enterprise search and reorganization capabilities were included within the scope of core enterprise capabilities. Furthermore, the study elucidated the roles of human capital and enterprise innovation in the interplay between digitalization and high-quality development, drawing upon the resource-based view and core capabilities theory. Finally, we empirically examined panel data from 116 listed cultural, sports, and tourism companies in Chinese A-share markets from 2010 to 2020. The findings reveal the following: (1) There is an inverted U-shaped association between digitalization and high-quality development, initially promoting then hindering progress, with a persistent pattern over time and robustness against instrumental variable regression and endogeneity tests. Additionally, the majority of cultural, sports, and tourism enterprises fall within a moderate range, indicating a positive impact on high-quality development. (2) Human capital and enterprise innovation are mediators of the inverted U-shaped relationship between digitalization and high-quality development. (3) The influence of digitalization on high-quality development significantly varies depending on the enterprise’s geographical location, life cycle, and risk tolerance. The study reveals the digitalization journey within cultural, sports, and tourism enterprises, offering theoretical insights for fostering collaborative high-quality development within the industry amid digitalization.

The influence of risk tolerance and brand trust on investment decision and customer engagement behavior

Understanding the impact of Risk Tolerance and Brand Trust on Investment Decisions and Customer Engagement Behavior is imperative in today's competitive financial environment. This study investigates the direct and mediating effects of Risk Tolerance and Brand Trust on Investment Decisions and Customer Engagement Behavior. Utilizing a quantitative approach with a survey method, data were collected from 144 private customers of Bank BRI in East Java through random sampling techniques. Structural Equation Modeling (SEM) was employed for data analysis. The research reveals significant direct effects of Risk Tolerance and Brand Trust on Investment Decisions. Likewise, the direct effects of brand trust and investment decision on customer engagement behavior are significant. However, the influence of risk tolerance on customer engagement behavior is not significant. These findings underscore the intricate dynamics of consumer behavior in the financial sector. This study contributes to a deeper understanding of how risk perception and trust in the brand affect investment decisions and customer engagement behavior, offering insights for strategic decision-making in the banking industry.

The interplay of cash flow uncertainty and firm life cycle on sustainability disclosure

AbstractThis study investigates the role of cash flow uncertainty and firm life cycle on sustainability disclosures using environmental, social and governance (ESG) disclosure score data. We conduct our analysis on a sample of 190 Indian firms for a period of 12 years from 2010 to 2021. Drawing upon the real‐option theory and organisational‐inertia theory, we document a negative impact of cash flow uncertainty and firm life cycle on a firm's commitment to disclose sustainability information. We also find a significant impact of managerial risk inclination and risk tolerance at the firm level in moderating the above relationships. Our findings can help managers equip themselves to meet the challenges of sustainability commitments during cash flow constraints and firm life‐cycle transitions. Moreover, our results can also help policymakers in assessing the need to enforce sustainability disclosures depending on the hurdles confronted by a firm.

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.

Entrepreneurial Behaviour in Choosing Capital Alternatives in MSMEs and Investment Trends in Indonesia

This study explores entrepreneurial behaviors that influence the decisions of SME owners in choosing financing alternatives and investment trends in Indonesia. Through quantitative study using questionnaire, this aiming to provide insights into the factors influencing the selection of financing sources and investment tendencies among SMEs. The findings reveal that entrepreneurial behaviors such as risk tolerance, financial knowledge, long-term vision, and adaptability significantly influence the decisions of SME owners in selecting funding sources. Additionally, investment trends in Indonesia also play a crucial role, with SMEs tending to choose financing alternatives that align with their business growth needs. This research contributes significantly to understanding how entrepreneurial behaviors interact with external factors such as investment trends in the context of SMEs in Indonesia. The practical implication highlighting importance of a better understanding of the dynamics of financing decisions among SMEs and how governments and relevant institutions can support SME growth through a better understanding of financial needs and preferences to a small—medium sized business owners. The condition where workers shift from agriculture to industry often occurs with the advent of industrialization.

Cardiovascular disease assessment and management in liver transplantation.

The prevalence and mortality related to end-stage liver disease (ESLD) continue to rise globally. Liver transplant (LT) recipients continue to be older and have inherently more comorbidities. Among these, cardiac disease is one of the three main causes of morbidity and mortality after LT. Several reasons exist including the high prevalence of associated risk factors, which can also be attributed to the rise in the proportion of patients undergoing LT for metabolic dysfunction-associated steatohepatitis (MASH). Additionally, as people age, the prevalence of now treatable cardiac conditions, including coronary artery disease (CAD), cardiomyopathies, significant valvular heart disease, pulmonary hypertension, and arrhythmias rises, making the need to treat these conditions critical to optimize outcomes. There is an emerging body of literature regarding CAD screening in patients with ESLD, however, there is a paucity of strong evidence to support the guidance regarding the management of cardiac conditions in the pre-LT and perioperative settings. This has resulted in significant variations in assessment strategies and clinical management of cardiac disease in LT candidates between transplant centres, which impacts LT candidacy based on a transplant centre's risk tolerance and comfort level for caring for patients with concomitant cardiac disease. Performing a comprehensive assessment and understanding the potential approaches to the management of ESLD patients with cardiac conditions may increase the acceptance of patients, who appear too complex, but rather require extra evaluation and may be reasonable candidates for LT. The unique physiology of ESLD can profoundly influence preoperative assessment, perioperative management, and outcomes associated with underlying cardiac pathology, and requires a thoughtful multidisciplinary approach. The strategies proposed in this manuscript attempt to review the latest expert experience and opinions and provide guidance to practicing clinicians who assess and treat patients being considered for LT. These topics also highlight the gaps that exist in the comprehensive care of LT patients and the need for future investigations in this field.

Trading Option Portfolios Using Expected Profit and Expected Loss Metrics

When trading in the call and put contracts of option chains, the portfolios of strikes must be selected. The trader must also decide whether to take long or short positions at the selected strikes. Dynamic strategies for making these decisions are discussed in this paper. On any day, the strategies estimate the drift and volatility parameters of the future probability distribution of the price of the underlying asset. From this distribution, the trader can further estimate the future expected profit and expected loss that may be experienced for any portfolio of strikes of the call and put contracts. Expected profit and expected loss are the reward and risk metrics of such portfolios. An optimal portfolio can then be selected by making the reward as high as possible under the risk tolerance set by the trader. Extensive back-testing applications to historical data of SPY option chains illustrate the effectiveness of these strategies, particularly when dealing with short-term expiry options and when acting as a seller of put and call options.

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.

The non-linear impact of risk tolerance on entrepreneurial profit and business survival

AbstractEntrepreneurs tend to be risk tolerant but is higher risk tolerance always better? In a sample of about 2100 small businesses, we find an inverted U-shaped relation between risk tolerance and profitability. This relationship holds in a simple bilateral regression, and even after controlling for a large set of individual and business characteristics. Apparently, one major transmission goes from risk tolerance via investments to profits. This is quite robust as it applies for both past and planned investments. Considering business survival, we show, first, that less profitable businesses leave the market while moderately risk tolerant entrepreneurs survive more often. Second, the high risk-low profit part of the U-shaped relation seems to disappear among businesses being 4 years and older, indicating that such inferior risk-profit combinations disappear over time. These findings are important for the concept of business readiness trainings as the motivation (and ability) to take risks should potentially be accompanied by some warning that taking too much risk can be detrimental to long-term business success.