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

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.

Gender Differences in Risk Tolerance

In this chapter, the author examines the influence of gender on financial risk tolerance. The risk tolerance is assessed by the instrument developed by Grable and Lytton in a sample that includes 272 postgraduate students of the University of Porto (Portugal). The results show that males are significantly more risk-tolerant than females, even after controlling for factors such as the economic status and educational levels of the respondents' parents. The gender differences seem to be essentially driven by a higher proportion of males with high levels of risk tolerance. Moreover, belonging to a household with a high level of annual income contributes to increase the likelihood of exhibiting high levels of risk tolerance. In the total sample, the levels of risk tolerance are lower than those reported in similar studies. Overall, the author documents that there are significant gender differences in financial risk perception.

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

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.

Factors Influencing Financial Risk Tolerance: A Review

High financial risk tolerance level encourages investors’ participation in financial market. Thus, elevate their capabilities to achieve their financial goals and support national economic growth and well-being. This paper aims to investigate the factors affecting financial risk tolerance from studies around the globe. A comprehensive review of financial risk tolerance is carried out with a particular attention on factors that impact financial risk tolerance on financial decisions. This study indicates that financial risk tolerance can be explained by demographic profiles, psychology, social, geographical differences, and financial capability factors. These findings will be useful to professionals, technologists, and financial institutions to identify potential investors based on the indicators concluded with the suggestion on financial technology (FinTech) utilisation. Hence, encouraging participation in the Malaysian financial market during global health crisis and reaching economic well-being towards industrial revolution 4.0 (IR 4.0).

Market discipline in the behavioral finance perspective: a case of Sharia mutual funds in Indonesia

Purpose This study aims to determine antecedents of market discipline. A model was constructed by extending the theory of planned behavior (TPB) to explore the cognitive, psychological and social factors that influence the market discipline in the form of withdrawal behavior. Design/methodology/approach This study applied a quantitative approach by surveying 181 Indonesian retail investors in Sharia mutual funds, which were represented by civil servants. The samples were collected using the purposive sampling technique. This study used the partial least square–structural equation model to analyze the data. Findings The results revealed that the Islamic financial literacy, the attitudes toward withdrawal, the subjective norms and the perceived behavioral control had a positive significant effect on the withdrawal intention, whereas financial risk tolerance had an insignificant impact. Then, all the exogenous variables and intention to withdraw had a significant contribution in explaining market discipline. Contrary to the proposed hypothesis, the attitude toward withdrawal had a negative impact on market discipline. The structural model indicated that the TPB could be extended by adding some exogenous variables (i.e. Islamic financial literacy and financial risk tolerance) in determining the intention to withdraw and withdrawal behavior, which indicated the market discipline in Sharia mutual funds. Research limitations/implications This study was limited to individual investors who work as civil servants. This study did not accommodate different demographic factors such as age and gender, which influence fund withdrawal behavior. Practical implications The government must focus on the inclusion of market discipline in Sharia mutual funds’ regulation to encourage the risk management disclosure, specifically that related to Sharia compliance. Originality/value Previous studies applied a traditional finance theory to predict market discipline, but this study contributes to filling the theoretical gap by explaining the market discipline from a behavioral finance perspective that was found in Sharia mutual funds.

Impact of Behavioral Biases in Financial Risk Tolerance Ability of Mutual Fund Investors

Objective: The Behavioral bias is the term that deals with the investors’ psychology about their investment decision with their investment expertise. Every individual is biased, according to standard economic theory by his behavior and experiences which are rational. Methods: This research seeks to segregate mutual fund holders into various groups (persons and professionals) based on Behavioral biases and then investigates whether these Behavioral biases are influencing the level of knowledge of investors and the financial risk tolerance of certain mutual funds. Statistical tools compare investors characteristics and analyse how Behavioral biases are associated. Results: The factors analysed are financial circumstance, Type of Investors, Asset class preference, Time Horizon and Purpose of Investment. The primary information was gathered from 250 Central India mutual fund investors dependent on Judgment sampling. CFA, Correlation, MANOVA and Regression. Conclusions: Findings shows the effect of the behavior bias has positive impact on mutual fund investor awareness and financial risk tolerance.

Demographic Variables, Delay Discounting Models and Dysfunctional Personality Traits as Predictors of Financial Risk-Tolerance Among Community-Dwelling Italian Adults

To evaluate the effect of demographic variables, delay discounting and dysfunctional personality traits on financial risk tolerance (FRT), 281 community-dwelling adults were administered the Italian translations of the Risk-Tolerance Scale (RTS), Monetary Choice Questionnaire, Probability Discounting Questionnaire, and Personality Inventory for DSM-5-Short Form (PID-5-SF) self-report questionnaires through an online platform. Hierarchical robust regression results showed that the linear combination of demographic variables (gender and active worker status), delay discounting measures and selected PID-5-SF trait scale scores (i.e., Attention Seeking and Risk Taking) explained roughly 39% of the RTS total score. As a whole, our findings underscore the role of demographic characteristics, dysfunctional personality traits and delay discounting in FRT expression. As a result, FRT is likely to represent the linear combination of several factors that should be assessed in order to understand FRT and prevent erroneous choices among lay investors.

The Effect of Financial Literacy, Financial Risk Tolerance, and Financial Socialization Agents on Stock Investment Decision in The Millennial Generation

This study aim to determine financial literacy, financial risk tolerance, and financial socialization agents effect/influence on stock investment decisions in the millennial generation. The research was conducted by distributing questionnaires to 400 millennial generation stock investors in Indonesia. The data analysis method by Structural Equation Modeling (SEM) using the SmartPLS 3.2.7 program. The results show that financial literacy has a significant effect on investment decisions. Financial risk tolerance has significant effect on investment decisions, meanwhile financial socialization agents do not have a significant effect on investment decisions.

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