An analysis of Risk Tolerance of Individual Investor using Gray Relational Analysis Method

Abstract

Risk tolerance refers to an individual investor's inclination towards embracing fluctuations in investment values in pursuit of higher income. It reflects their capacity to endure such fluctuations and financial goals, time horizon and emotional comfort various including status influenced by factors. Personal preferences and investment choices with circumstances as it helps to regulate, informed investment decisions one's risk tolerance in taking understanding is important. financial situation, investment objectives, knowledge of the financial market, factors like experience, and emotional intelligence contribute to determining one's risk tolerance. Investors' risk tolerance is often assessed through questionnaires or evaluations conducted by financial advisors, which consider factors like attitudes towards risk, investment goals, time horizon, and financial situation. Based on the assessment, investors may be categorized into different risk profiles such as conservative, moderate, or aggressive, with corresponding investment strategies suggested accordingly. It's essential for investors to honestly evaluate and be realistic about their risk tolerance, as overestimating it may lead to excessive risk-taking and potential losses during market downturns, while underestimating it may result in overly conservative investment choices. Regular reviews of risk tolerance are recommended, especially in light of significant life events or market fluctuations. The concept of risk-return trade-off highlights that higher returns are typically associated with higher levels of risk, implying that investors expecting higher returns must be prepared to accept greater potential losses. However, risk tolerance isn't solely determined by financial factors; emotional elements such as fear, anxiety, and market sentiment also influence an investor's tolerance for risk and their behaviour during periods of volatility. Therefore, a comprehensive understanding of risk tolerance encompasses both financial considerations and emotional factors. the GRA (Grey Relational Analysis) approach at its inception, focusing on the concept of the gray gadget. This technique is particularly effective for selection problems involving multiple attributes within a component. The current literature highlights its applicability in addressing problems associated with multiple factors and variables, especially when dealing with complex relationships. The GRA approach is well-suited for resolving issues related to fixing problems, and various types of GRA techniques have been proposed in the field. The introduction of the GRA approach is both straightforward and environmentally friendly, making it a practical choice for addressing complex problems involving multiple variables. Investment Objectives, Time Horizon, Financial Situation, Knowledge and Experience and Liquidity Needs. Risk Assessment Questionnaires, Investment Experience and Knowledge, Financial Situation, Investment Goals and Emotional Attitude Towards Risk. the Rank of GRA for Risk Tolerance of Individual Investors. Liquidity Needs is got the first rank whereas the Low Risk Tolerance is having the Lowest rank.