A longitudinal study of financial risk tolerance

Venter, Gerhard Van de; Michayluk, David; Davey, Geoff

doi:10.1016/j.joep.2012.03.001

Cited by 105 publications

(65 citation statements)

References 11 publications

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“…Financial risk tolerance is conceptualised under two major different viewpoints in prior studies (Roszkowski & Davey 2010;Van de Venter, Michayluk, & Davey 2012). The first considers financial risk tolerance to be influenced by not only personal characteristics but also situational factors which induce risk tolerance to change overtime (Rui Yao 2003;Hoffmann, Post, & Pennings 2013).…”

Section: The Risk Tolerance/asset Allocation Decision Frameworkmentioning

confidence: 99%

“…The first considers financial risk tolerance to be influenced by not only personal characteristics but also situational factors which induce risk tolerance to change overtime (Rui Yao 2003;Hoffmann, Post, & Pennings 2013). The other defines financial risk tolerance as a relatively stable trait that does not change significantly (Roszkowski & Davey 2010;Van de Venter et al 2012;Gerrans, Faff, & Hartnett 2013). More importantly, based on their findings, Roszkowski and Davey (2010) and Van de Venter et al (2012) combined two different viewpoints of financial risk tolerance discussed above by suggesting that (1) financial risk tolerance is generally considered as a personal trait but it can change over time and (2) the change in financial risk tolerance is driven by external factors.…”

Section: The Risk Tolerance/asset Allocation Decision Frameworkmentioning

confidence: 99%

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The Influence of Financial Risk Tolerance on Investment Decision-Making in a Financial Advice Context

Nguyen¹,

Gallery²,

Newton³

2016

AABFJ

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Client risk tolerance is universally assessed in the advisory process to help financial advisers provide suitable advice that assists clients in their investment decision-making. Although there is a well-established literature on risk tolerance and decision-making, little is known about financial risk tolerance and its influence on investor decisions in the financial advice context. Thus, the purpose of this study is to examine this influence with a focus on the key expected risk tolerance determinants: client financial literacy, trust in the financial advice service, and relationship length with the service. A new theoretical model and related hypotheses were proposed and tested using survey data from financial adviser clients in Australia (N=538). Results revealed a positive relationship between client risk tolerance and investment decision-making. Further, client trust and relationship length with the service were found to be positively associated with client financial literacy and risk tolerance. These findings, which provide a more comprehensive understanding of how risk tolerance and its antecedents influence client decisions, have the potential to improve advice in the financial services industry. KeywordsRisk tolerance, individual investment decisions, client-adviser relationship, financial advice context, financial planning AbstractClient risk tolerance is universally assessed in the advisory process to help financial advisers provide suitable advice that assists clients in their investment decision-making. Although there is a well-established literature on risk tolerance and decision-making, little is known about financial risk tolerance and its influence on investor decisions in the financial advice context. Thus, the purpose of this study is to examine this influence with a focus on the key expected risk tolerance determinants: client financial literacy, trust in the financial advice service, and relationship length with the service. A new theoretical model and related hypotheses were proposed and tested using survey data from financial adviser clients in Australia (N=538). Results revealed a positive relationship between client risk tolerance and investment decisionmaking. Further, client trust and relationship length with the service were found to be positively associated with client financial literacy and risk tolerance. These findings, which provide a more comprehensive understanding of how risk tolerance and its antecedents influence client decisions, have the potential to improve advice in the financial services industry. JEL Classification: D14

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Section: The Risk Tolerance/asset Allocation Decision Frameworkmentioning

confidence: 99%

Section: The Risk Tolerance/asset Allocation Decision Frameworkmentioning

confidence: 99%

The Influence of Financial Risk Tolerance on Investment Decision-Making in a Financial Advice Context

Nguyen¹,

Gallery²,

Newton³

2016

AABFJ

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“…They distinguished among the three features of risk tolerance by defining risk preference as a personality trait of being attracted to risk, whereas risk perception as an individual's assessment of a situation-specific risk, and risk propensity as the objective likelihood of an individual taking or avoiding risk. Van-de-Venter, Michayluk and Davey (2012) distinguished risk into subjective and objective financial risk tolerance. They defined subjective financial risk as the risk that an individual prefers to accept, while objective financial risk is a risk that an individual can take.…”

Section: Introductionmentioning

confidence: 99%

Does Financial Literacy Moderate the Relationship among Demographic Characteristics and Financial Risk Tolerance? Evidence from Egypt

Shusha¹

2017

AABFJ

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Financial risk tolerance is certainly an important topic for researchers, investors and personal financial planners or consultants. This study purposed to investigate the effect of demographic characteristics on financial risk tolerance among Egyptians. A literature review of demographic determinants of financial risk tolerance showed dialectical results. Therefore, this study attempts to clarify the debatable issues in these results by studying the moderating role of financial literacy in relationships among demographic characteristics and financial risk tolerance. The study sample included 386 respondents representing different segments of Egyptian people. Using the hierarchical regression analysis, the results demonstrated that there were significant effects of gender, age, educational level and annual income on financial risk tolerance. Moreover, the financial literacy moderates the relationships among demographic characteristics of individuals and their tendency to take a risk. AbstractFinancial risk tolerance is certainly an important topic for researchers, investors and personal financial planners or consultants. The study purposed to investigate the effect of demographic characteristics on financial risk tolerance among Egyptians. A literature review of demographic determinants of financial risk tolerance showed dialectical results. Therefore, this study attempts to clarify the debatable of these results by studying the moderating role of financial literacy in relationships among demographic characteristics and financial risk tolerance. The study sample included 386 respondents representing different segments of Egyptian people. Using the hierarchical regression analysis, the results demonstrated that there were significant effects of gender, age, educational level and annual income on financial risk tolerance. Moreover, the financial literacy moderates the relationships among demographic characteristics of individuals and their tendency to take a risk.JEL Classification: N25, D14, D31, G02

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“…For example, Wallach and Kogan (1961) found that younger people were more risk tolerant than older individuals. This finding is widely accepted by scholars and many professional advisors (Bajtelsmit & Van Derhei, 1997;Bakshi & Chen, 1994;McInish, 1982;Morin & Suarez, 1983;Van de Venter & Michayluk, 2009). This can be explained by the fact that because younger investors have more years to live, they expect to recover from any losses that might result from risky investment.…”

Section: Agesupporting

confidence: 56%

Explaining Investor Preferences: The Significance of Socio-demographic, Ideological, and Attitudinal Factors

Beydoun¹

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A longitudinal study of financial risk tolerance

Cited by 105 publications

References 11 publications

The Influence of Financial Risk Tolerance on Investment Decision-Making in a Financial Advice Context

The Influence of Financial Risk Tolerance on Investment Decision-Making in a Financial Advice Context

Does Financial Literacy Moderate the Relationship among Demographic Characteristics and Financial Risk Tolerance? Evidence from Egypt

Explaining Investor Preferences: The Significance of Socio-demographic, Ideological, and Attitudinal Factors

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