Personality Traits Leads to Investor’s Financial Risk Tolerance: A Structural Equation Modelling Approach

2021 ◽  
pp. 0258042X2110189
Author(s):  
Kamini Rai ◽  
Abha Gupta ◽  
Anshu Tyagi
Keyword(s):  
Big Five ◽  
Structural Equation ◽  
Financial Risk ◽  
Risk Tolerance ◽  
Second Order ◽  
Tolerance Level ◽  
Equation Modelling ◽  
Order Factor ◽  
Financial Risk Tolerance ◽  
Modelling Approach

In today’s scenario, investors’ preferences towards different investment avenues depend upon their risk tolerance level and return associated with investment plan. The tolerance level of investors for risk is influenced by many demographic and psychological factors. Personality traits (PTs) are one of the important factors that impact the tolerance levels of investors for risk. Thus, the existing study focuses on whether (a) the direct effect of Big Five PTs on financial risk tolerance (FRT) or (b) PTs as a second-order (higher-order) factor leads to FRT. Data are cross-sectional in nature, which were collected from 599 investors who invested through Angel Broking Co. (Securities co.) in Delhi and the National Capital Region (NCR) by using online structured questionnaire. To examine the strength of the relationship between variables’ correlation and regression tests were applied using the structural equation modelling approach. The study found that among Big Five personality dimensions, only agreeableness, conscientiousness and openness are significantly associated with FRT, whereas PTs as a second-order (higher-order) factor have a strong association with FRT of investors. Thus, the PT as a second order is the preferred model. JEL Code: G02

Retail Investors’ Financial Risk Tolerance and Risk-taking Behaviour: The Role of Psychological Factors

2021 ◽  
pp. 231971452110582
Author(s):  
Pragati Hemrajani ◽  
Rajni ◽  
Rahul Dhiman
Keyword(s):  
Risk Taking ◽  
Psychological Factors ◽  
Structural Equation ◽  
Financial Risk ◽  
Risk Tolerance ◽  
Individual Investors ◽  
Financial Advisors ◽  
Research Model ◽  
Financial Risk Tolerance

The aim of this article is to look at how two psychological factors affect financial risk tolerance (FRT) and financial risk-taking behaviour (FRB) of individual investors. The study also investigates the role of FRT in mediating the relationship between psychological factors and FRB. A standardized questionnaire was used to collect the information. For the study, a total of 303 completed questionnaires were used. The proposed research model was validated and assessed using partial least squares structural equation modelling. The findings revealed some important experiences. Emotional intelligence and impulsiveness have a significant relationship with both FRT and FRB, according to the results. The findings also support FRT’s position as a mediating factor in the proposed research model. The results emphasize the importance of psychological factors in determining an individual’s FRT and FRB. FRT is a complex mechanism that entails more than just psychological considerations. As a result, further research is needed to decide which additional factors financial advisors can use to increase the explained variance in FRT inequalities.

The Effects of Situational and Dispositional Factors on the Change in Financial Risk Tolerance

2015 ◽  
pp. 201-220
Author(s):  
Jorge Ruiz-Menjivar ◽  
Wookjae Heo ◽  
John E. Grable
Keyword(s):  
Conceptual Framework ◽  
Attribution Theory ◽  
Sensation Seeking ◽  
Structural Equation ◽  
Financial Risk ◽  
Risk Tolerance ◽  
Macroeconomic Factors ◽  
Household Situation ◽  
Dispositional Factors ◽  
Financial Risk Tolerance

Utilizing the lens of Heider's (1958) attribution theory and Grable and Joo's (2004) conceptual framework, this chapter studies the effect of situational and dispositional attributions on changes in financial risk tolerance. Situational factors are assessed through changes in household situation and changes in macroeconomic factors. For dispositional factors, changes upon sensation seeking attitudes are explored. The data employed in this research come from the 1993, 1994, and 2006 National Longitudinal Survey of Youth (N = 5,449). Results from structural equation modeling indicate that changes in internal attributions have a significant and positive effect (coefficient = 0.12, p <0.01) on the change in risk tolerance, as is true for changes in external attributions where a significant effect is seen (coefficient = 0.30, p <0.01). Thus, the findings from this study support the conceptual framework premised on Heider's attribution theory and Grable and Joo's (2004) conceptual model.

Propensity toward financial risk tolerance: an analysis using behavioural factors

2019 ◽  
Vol 12 (3) ◽  
pp. 259-281 ◽  
Author(s):  
Mahfuzur Rahman
Keyword(s):  
Structural Equation ◽  
Financial Risk ◽  
Risk Tolerance ◽  
Financial Advisors ◽  
Research Model ◽  
Content Type ◽  
New Findings ◽  
Behavioural Factors ◽  
Financial Risk Tolerance

Purpose The purpose of this paper is to investigate the influence of six core behavioural factors on financial risk tolerance (FRT). The study also analyses the role of religiosity in the relationship between behavioural factors and FRT. Design/methodology/approach Empirical data were collected using a survey questionnaire. A total of 1,679 questionnaires were distributed to six public universities in the Klang Valley. However, only 1,204 questionnaires were completed and used for analysis. This study employs structural equation modelling to validate and assess proposed research model. Findings The results of the analysis demonstrated some new findings. The findings indicate that propensity for regret, propensity for trust, happiness in life, propensity to attribute success to luck and propensity for overconfidence have a significant influence on FRT while propensity for social interaction does not. The results also provide support for the moderating effects of religiosity in the proposed research model. Originality/value The findings highlight the important role of behavioural determinants to assess individuals’ FRT. Understanding FRT is a complex process that goes beyond the exclusive use of behavioural factors. Thus, more research is clearly needed to resolve which additional factors can be used by financial advisors to increase the explained variance in FRT differences.

The Influence of Personality Traits on Households’ Financial Risk Tolerance and Financial Behaviour

2017 ◽  
Vol 30 (1) ◽  
pp. 32-54 ◽  
Author(s):  
Teerapong Pinjisakikool
Keyword(s):  
Personality Traits ◽  
Instrumental Variables ◽  
Big Five ◽  
Financial Risk ◽  
Big Five Personality Traits ◽  
Risk Tolerance ◽  
Big Five Personality ◽  
Financial Behaviour ◽  
Potential Factors ◽  
Financial Risk Tolerance

Using a large sample that can represent the Dutch population, this article mainly studies the determinants of financial risk tolerance. I propose that the big five personality traits are the potential factors that can explain differences in financial risk tolerance among individuals. Furthermore, this article examines the effect of personality traits on the actual financial behaviour of households through financial risk tolerance. I find that all the big five personality traits including extraversion, agreeableness, conscientiousness, emotional stability and intellect significantly predict financial risk tolerance. Additionally, these personality traits as instrumental variables can also indirectly predict the financial behaviour of households. JEL: D10, D14, D19

The Effects of Situational and Dispositional Factors on the Change in Financial Risk Tolerance

2018 ◽  
pp. 190-210 ◽  
Author(s):  
Jorge Ruiz-Menjivar ◽  
Wookjae Heo ◽  
John E. Grable
Keyword(s):  
Conceptual Framework ◽  
Attribution Theory ◽  
Sensation Seeking ◽  
Structural Equation ◽  
Financial Risk ◽  
Risk Tolerance ◽  
Macroeconomic Factors ◽  
Household Situation ◽  
Dispositional Factors ◽  
Financial Risk Tolerance

Utilizing the lens of Heider's (1958) attribution theory and Grable and Joo's (2004) conceptual framework, this chapter studies the effect of situational and dispositional attributions on changes in financial risk tolerance. Situational factors are assessed through changes in household situation and changes in macroeconomic factors. For dispositional factors, changes upon sensation seeking attitudes are explored. The data employed in this research come from the 1993, 1994, and 2006 National Longitudinal Survey of Youth (N = 5,449). Results from structural equation modeling indicate that changes in internal attributions have a significant and positive effect (coefficient = 0.12, p <0.01) on the change in risk tolerance, as is true for changes in external attributions where a significant effect is seen (coefficient = 0.30, p <0.01). Thus, the findings from this study support the conceptual framework premised on Heider's attribution theory and Grable and Joo's (2004) conceptual model.

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