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Abstract
This paper investigates financial risk tolerance (FRT) with multiple risk assessments: 13-item questionnaire (Grable and Lytton, 1999) and single item measurement (Survey of Consumer Finances, Kennickell, 2003). Demographics, opinions/attitudes, and investor's characteristics were used to explore the relationship with risk tolerance. Data was collected from two hundred and sixty- eight individuals who had invested previously and were currently employed. Results show that male, individuals with metric/ O level education, those expecting inheritance, transfer of assets or both, along with personality traits such as achievement, vigilance, emotions (positive and negative) in uncertain environment significantly effect financial risk tolerance. Culture dimensions such as femininity and uncertainty avoidance were also significant with risk tolerance while future outlook did not effect FRT. The results further indicate that multiple assessment of FRT is a better measure as it allows for in-depth analysis FRT sub-variables (investment risk, risk comfort and experience and speculative risk. Lastly, conclusion and discussion are presented.
Keywords-Investor's Attitudes, Investor's characteristics, Personality, Financial Risk Tolerance, developing country, Survey of Consumer Finances
1.Introduction
Financial risk tolerance has been defined by Grable (2000) as the amount of financial ambiguity an individual is presented with, when making decisions. It is the willingness to accept uncertainty when making financial decisions. Several techniques have been developed to measure financial risk tolerance. These techniques are by observing risk behaviors and those using surveys to gauge investor's behaviors (Hanna, Gutter, & Fan, 2001; Hanna & Lindamood, 2004). Grable (2000) suggested a combination of investment and speculative choices along with comfort with risk and experience to measure financial risk tolerance.
Financial risk tolerance has been studied in regards to demographics by several authors (Yao & Hanna, 2005; Grable, 2000; Sung & Hanna, 1996). Grable and Joo (1997) and Carducci and Wong (1998) suggested several attitudinal factors that could influence individual's willingness to take financial risk regarding money matters. Hence it was proposed that personality factors, cognitive style, decision making style and characteristics, risk taking all play significant role in identifying the financial risk tolerance of an individual.
The purpose of this research is to examine the relationship between the demographics (gender, age, education, ethnicity, marital status, income bracket and employment status), opinion/attitudes (health condition, inheritance expectation, economic outlook, and homeowner) and investor's characteristics...