The Role of Big Data Research Methodologies in Describing Investor Risk Attitudes and Predicting Stock Market Performance

2022 ◽  
pp. 293-315
Author(s):  
Wookjae Heo ◽  
Eun Jin Kwak ◽  
John E. Grable
Keyword(s):  
Stock Market ◽  
Financial Risk ◽  
Market Performance ◽  
Risk Tolerance ◽  
Market Returns ◽  
Prediction Modeling ◽  
Risk And Return ◽  
Stock Market Performance ◽  
Financial Risk Tolerance

The purpose of this chapter is to compare the performance of a deep learning modeling technique to predict market performance compared to conventional prediction modeling techniques. A secondary purpose of this chapter is to describe the degree to which financial risk tolerance can be used to predict future stock market performance. Specifically, the models used in this chapter were developed to test whether aggregate investor financial risk tolerance is of value in establishing risk and return market expectations. Findings from this chapter's examples also provide insights into whether financial risk tolerance is more appropriately conceptualized as a predictor of market returns or as an outcome of returns.

Financial Risk Tolerance Before and After a Stock Market Shock: Testing the Recency Bias Hypothesis

2020 ◽  
pp. JFCP-19-00025
Author(s):  
Abed G. Rabbani ◽  
John E. Grable ◽  
Barbara O'Neill ◽  
Frances Lawrence ◽  
Zheying Yao
Keyword(s):  
Stock Market ◽  
Financial Risk ◽  
Risk Tolerance ◽  
Decision Makers ◽  
Multivariate Tests ◽  
Major Market ◽  
Stock Market Performance ◽  
Before And After ◽  
Financial Decision ◽  
Financial Risk Tolerance

Is there an association between a household financial decision maker’s risk tolerance and the performance of the stock market? Some researchers argue that financial market events have little association with the financial risk tolerance (FRT) of household financial decision makers, while others argue that FRT among individuals can vary in relation to significant market fluctuations. The applicability of either argument may depend on the length of the period before and after a major market event. The purpose of this study was to evaluate aggregate changes in FRT around a major stock market event for different anchor time periods and to test the recency bias hypothesis. The analyses were designed to explore the FRT of Americans during a volatile multimonth period of stock market performance in 2018–2019. Several univariate, bivariate, and multivariate tests were used to compare FRT assessment scores pre- and post-October 3rd, 2018 (i.e., the market high in 2018). A decrease in FRT from the market high was noted across the sample; however, the decrease was exhibited most acutely by younger, nonmarried respondents with few investable assets. A noteworthy finding from this study is that financial counselors and financial planners likely serve a “buffering” role when household financial decision makers experience stock market shocks.

Effects of the COVID-19 pandemic on stock market returns and volatilities: evidence from selected emerging economies

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Bijoy Rakshit ◽  
Yadawananda Neog
Keyword(s):  
Exchange Rate ◽  
Stock Market ◽  
Emerging Economies ◽  
Market Performance ◽  
Exchange Rate Volatility ◽  
Oil Price ◽  
Market Returns ◽  
Stock Market Returns ◽  
Content Type ◽  
Stock Market Performance

Purpose The purpose of this paper is to investigate the effects of exchange rate volatility, oil price return and COVID-19 cases on the stock market returns and volatility for selected emerging market economies. Additionally, this study compares the market performance in the emerging economies during the COVID-19 pandemic with the pre-COVID and global financial crisis (GFC) period. Design/methodology/approach The authors apply the arbitrage pricing theory to model the risk-return relationship between the risk-based factors (exchange rate volatility and COVID-19 cases) and stock market returns. By applying the exponential generalized autoregressive conditional heteroskedasticity model, the study captures the asymmetric volatility spillover from the stock markets to foreign exchange markets and vice versa. Findings Findings reveal that exchange rate volatility exerts a negative and significant effect on the market returns in Brazil (BOVESPA), Chile (S&P CLX IPSA), India (SENSEX), Mexico (S&P BMV IPC) and Russia (MOEX) during the coronavirus pandemic. Regarding the effect of oil price returns, the authors find a positive relationship between oil price and stock market returns across all the economies in the study. The market returns of Russia, India, Brazil and Peru appeared more volatile during the pandemic than the GFC period. Practical implications As the exchange rate volatility is causing higher risk and uncertainty in the stock market’s performance, the central bank’s effort to maintain a stabilizing effect on the exchange rate sale can be proven crucial for the economies under consideration. Emphasized should also be given to boost investors’ confidence in the stock market, and for this, the government policy actions in reducing the transmission of the disease are the need of the hour. Originality/value While a large volume of literature on stock market performance in times of COVID-19 has emerged from developed economies, this study adds to the literature by exploring the emerging economies’ stock market performance during the COVID-19 pandemic. Unlike previous literature, this study examines the volatility spillover between stock and exchange rate markets in the worst affected emerging economies during the crisis.

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.

Antecedents to responsible financial management behavior among young adults: moderating role of financial risk tolerance

2020 ◽  
Vol 38 (5) ◽  
pp. 1177-1194 ◽  
Author(s):  
Dhananjay Bapat
Keyword(s):  
Young Adults ◽  
Financial Management ◽  
Financial Risk ◽  
Risk Tolerance ◽  
Financial Knowledge ◽  
Financial Behavior ◽  
Management Behavior ◽  
Content Type ◽  
Financial Risk Tolerance

PurposeThe study examines the antecedents of responsible financial management behavior among young adults in India and explores the role of financial risk tolerance as a moderating variable.Design/methodology/approachThe sample includes young adults in the age group of 18–35. The analysis uses a two-step approach via standard partial least squares structural modeling (PLS-SEM) and ordinary least square (OLS) regression.FindingsStructural modeling results show that financial attitude fully mediates the relationship between financial knowledge and responsible financial management behavior, and locus of control influences responsible financial management behavior. Financial risk tolerance moderates the relationship. Among demographic factors, age and occupation influence responsible financial management behavior.Research limitations/implicationsThe financial knowledge used in the survey are based on self-reported responses. The future study can include participants from both developed and emerging countries to assess similarities and differences.Practical implicationsDespite the growing focus on improving financial literacy, there are growing concerns regarding responsible financial behavior. Since financial services is related to fiduciary responsibility, managers and policymakers need to ensure that financial knowledge results in improving financial attitude, which further leads to responsible financial behavior.Originality/valueThe present study from an emerging country will add value to the literature.

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