Published January 30, 2024 | Version CC-BY-NC-ND 4.0
Journal article Open

A Critical Review of Research on Financial Risk Tolerance

Creators

  • 1. School of Commerce and Business Studies, Junior Research Fellow, Faculty of Commerce, Jiwaji University, Gwalior (M. P), India.

Contributors

Contact person:

Researcher:

  • 1. School of Commerce and Business Studies, Junior Research Fellow, Faculty of Commerce, Jiwaji University, Gwalior (M. P), India
  • 2. School of Commerce and Business Studies, Dean, Faculty of Commerce, Jiwaji University, Gwalior 474011 (M.P), India.

Description

Abstract: This paper conferred the objective to conduct a critical review of research on Financial Risk Tolerance. A total of 58 research papers were reviewed and published between 2000 and 2022. This investigation has been split into three sections. Firstly, focused on various types of personality. Secondly, have to do with Six demographic variables, and the remaining with various objectives. Tables and graphs were used to demonstrate the basis of the year of publication, the belonging country, the types of data, the objectives of the research, and the statistical tool used. Findings show that more no. of research had been done during the last decade, and India shares the most no. of research papers. Nearly 75% of research is based on primary data. Grable’s 13-item questionnaire and 5-point Likert Scale are used often. Descriptive Statistics, Cronbach alpha, correlation, and regression are a few most common tools utilized in research papers.

Files

E168410050124.pdf

Files (931.9 kB)

Name Size Download all
md5:35c5dd202e115d561f270c4dcf0d8a0d
931.9 kB Preview Download

Additional details

Identifiers

EISSN
2394-0913
DOI
10.35940/ijmh.E1684.10050124

Dates

Accepted
2024-01-15
Manuscript received on 25 December 2023 | Revised Manuscript received on 12 January 2024 | Manuscript Accepted on 15 January 2024 | Manuscript published on 30 January 2024.

References

  • Anic, G. (2007). The Association Between Risk Taking And Personality. Graduate Theses and Dissertations., 35.
  • Awais, M., Laber, M. F., Rasheed, N., & Khursheed, A. (2016). Impact of Financial Literacy and Investment Experience on Risk Tolerance and Investment Decisions: Empirical Evidence from Pakistan. 6(1), 7.
  • ayuub, sunia, latif, madiha, aslam, sumaira, & saleem, hassan. (2015). Financial Risk Tolerance Based On Demographic Factors Pakistani Perspective. International Journal of Information, Business and Management, 7(2), 20.
  • Basheer, A., & Siddiqui, D. A. (2020). Explaining the Disposition Bias among Investors: The Mediatory Role of Personality, Financial Literacy, Behavioral Bias and Risk Tolerance. Business and Economic Research, 10(2), 290. https://doi.org/10.5296/ber.v10i2.16827
  • Bayar, Y., Sezgin, H. F., Öztürk, Ö. F., & Şaşmaz, M. Ü. (2020). Financial Literacy and Financial Risk Tolerance of Individual Investors: Multinomial Logistic Regression Approach. SAGE Open, 10(3), 215824402094571. https://doi.org/10.1177/2158244020945717
  • Chiang, T.-F., & Xiao, J. J. (2017). Household characteristics and the change of financial risk tolerance during the financial crisis in the United States: CHIANG and XIAO. International Journal of Consumer Studies, 41(5), 484–493. https://doi.org/10.1111/ijcs.12356
  • Çi̇Fçi̇, G., & Rei̇S, Ş. G. (2021). THE INVESTOR RISK TOLERANCE AND MARKET LIQUIDITY CONNECTION: EVIDENCE FROM THE SELECTED MARKETS. Hitit Sosyal Bilimler Dergisi. https://doi.org/10.17218/hititsbd.1024411
  • De Bortoli, D., da Costa, N., Goulart, M., & Campara, J. (2019). Personality traits and investor profile analysis: A behavioral finance study. PLOS ONE, 14(3), e0214062. https://doi.org/10.1371/journal.pone.0214062
  • Dhiman, B., & Raheja, S. (2018). Do Personality Traits and Emotional Intelligence of Investors Determine Their Risk Tolerance? Management and Labour Studies, 43(1–2), 88–99. https://doi.org/10.1177/0258042X17745184
  • Dickason, Z., & Ferreira, S. (2018). Establishing a link between risk tolerance, investor personality and behavioural finance in South Africa. Cogent Economics & Finance, 6(1), 1519898. https://doi.org/10.1080/23322039.2018.1519898
  • Dohmen, T., Falk, A., Huffman, D., Sunde, U., Schupp, J., & Wagner, G. G. (2005). Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.807408
  • Eker, M., & Anbar, A. (2010). AN EMPIRICAL INVESTIGATION FOR DETERMINING OF THE RELATION BETWEEN PERSONAL FINANCIAL RISK TOLERANCE AND DEMOGRAPHIC CHARACTERISTIC. Ege Akademik Bakis (Ege Academic Review), 10(2), 503–503. https://doi.org/10.21121/eab.2010219633
  • Faff, R., Hallahan, T., & McKenzie, M. (2009). Nonlinear linkages between financial risk tolerance and demographic characteristics. Applied Economics Letters, 16(13), 1329–1332. https://doi.org/10.1080/13504850701381123
  • Faff, R., Mulino, D., & Chai, D. (2008). ON THE LINKAGE BETWEEN FINANCIAL RISK TOLERANCE AND RISK AVERSION. Journal of Financial Research, 31(1), 1–23. https://doi.org/10.1111/j.1475-6803.2008.00229.x
  • Ferreira, S. J. (2019). IS FINANCIAL RISK TOLERANCE INFLUENCED BY PERSONALITY TRAITS? Proceedings of the 12th Economics & Finance Conference, Dubrovnik. 12th Economics & Finance Conference, Dubrovnik. https://doi.org/10.20472/EFC.2019.012.005
  • Finke, M. S., & Huston, S. J. (2003). The Brighter Side of Financial Risk: Financial Risk Tolerance and Wealth. Journal of Family and Economic Issues, 24(3), 24. https://doi.org/10.1023/A:1025443204681
  • Gibson'', R., Michayluk''', D., & de Venter'', G. V. (2013). Financial risk tolerance: An analysis of unexplored factors. Financial Services Review, 22(1), 23–50.
  • Gilliam, J., Chatterjee, S., & Grable, J. (2010). Measuring the Perception of Financial Risk Tolerance: A Tale of Two Measures. Journal of Financial Counselling and Planning, 21(2). https://ssrn.com/abstract=2061313
  • Grable, J. (1999). Financial risk tolerance revisited: The development of a risk assessment instrument⋆. Financial Services Review, 8(3), 163–181. https://doi.org/10.1016/S1057-0810(99)00041-4
  • Grable, J. E. (2000). Financial Risk Tolerance and Additional Factors That Affect Risk Taking in Everyday Money Matters. JOURNAL OF BUSINESS AND PSYCHOLOGY, 14(4), 625–630. https://doi.org/10.1023/A:1022994314982
  • Grable, J. E., Britt, S. L., & Webb, F. J. (2008). Environmental and Biopsychosocial Profiling as a Means for Describing Financial RiskTaking Behavior. 19(2), 16.
  • Grable, John. E., & Lytton, Ruth. H. (1998). Investor Risk Tolerance: Testing the Efficacy of Demographics as Differentiating and Classifying Factors. Financial Counselling and Planning, 9(1), 61– 73.
  • Hallahan, T. A., Faff, R. W., & McKenzie, M. D. (2004). An empirical investigation of personal financial risk tolerance. Financial Services Review, 13(1), 22.
  • Hammitt, J. K., Haninger, K., & Treich, N. (2009). Effects of Health and Longevity on Financial Risk Tolerance. The Geneva Risk and Insurance Review, 34(2), 117–139. https://doi.org/10.1057/grir.2009.6
  • Hendrawaty, E., Irawati, N., & Sadalia, I. (2020). FINANCIAL LITERACY, DEMOGRAPHIC DIFFERENCES AND FINANCIAL RISK TOLERANCE LEVEL: A CASE STUDY. Journal of Security and Sustainability Issues, 9(M). https://doi.org/10.9770/jssi.2020.9.M(15)
  • Hermansson, C., & Jonsson, S. (2021). The impact of financial literacy and financial interest on risk tolerance. Journal of Behavioral and Experimental Finance, 29, 100450. https://doi.org/10.1016/j.jbef.2020.100450
  • Hussain, S., & Rasheed, A. (2022). Empirical Study on Financial Literacy, Investors' Personality, Overconfidence Bias and Investment Decisions and Risk Tolerance as Mediator Factor [Preprint]. In Review. https://doi.org/10.21203/rs.3.rs-2005225/v1
  • Istiqomah, N., & Krisnawati, A. (2021). Risk Tolerance and Investor Decision Behavior in MSMEs. AFRE (Accounting and Financial Review), 4(1), 45–53. https://doi.org/10.26905/afr.v4i1.5979
  • Jameel, Q., & Siddiqui, D. A. (2019). Effect of Demographics, Personality Traits, and Financial Literacy on Risk Tolerance and Behavioral Biases in Individual Investors of Pakistan Stock Exchange. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3510620
  • Kannadhasan, M. (2015). Retail investors' financial risk tolerance and their risk-taking behaviour: The role of demographics as differentiating and classifying factors. IIMB Management Review, 27(3), 175–184. https://doi.org/10.1016/j.iimb.2015.06.004
  • Kubilay, B., & Bayrakdaroglu, A. (2016). An Empirical Research on Investor Biases in Financial Decision-Making, Financial Risk Tolerance and Financial Personality. International Journal of Financial Research, 7(2), p171. https://doi.org/10.5430/ijfr.v7n2p171
  • Lawrenson, J., & Dickason-Koekemoer, Z. (2020). A model for female South African investors' financial risk tolerance. Cogent Economics & Finance, 8(1), 1794493. https://doi.org/10.1080/23322039.2020.1794493
  • Mabalane, M. D. (2015). CULTURAL AND DEMOGRAPHIC DIFFERENCES IN FINANCIAL RISK TOLERANCE. 137.
  • Mathur, Dr. G., & Nathani, Dr. N. (2019). Personality Traits and Risk Tolerance among Young Investors. International Journal of Innovative Technology and Exploring Engineering, 8(10), 2019– 2023. https://doi.org/10.35940/ijitee.J9312.0881019
  • Mishra, M., & Mishra, S. (2016). Financial Risk Tolerance among Indian Investors: A Multiple Discriminant Modeling of Determinants. Strategic Change, 25(5), 485–500. https://doi.org/10.1002/jsc.2075
  • Nidhi Jain & Dr. Bikrant Kesari. (2020). An Empirical Analysis of Investor Behavioral Biases, Investment Risk Tolerance and DecisionMaking. GIS Business, 15(2), 46–57. https://doi.org/10.26643/gis.v15i2.18897
  • Nurhidayah, N. (2022). Social Media, Financial Risk Tolerance, and Indonesian Millennial Generation Investor Behavior. International Journal of Finance & Banking Studies (2147-4486), 11(4), 17–23. https://doi.org/10.20525/ijfbs.v11i4.1840
  • Pak, O., & Mahmood, M. (2015). Impact of personality on risk tolerance and investment decisions: A study on potential investors of Kazakhstan. International Journal of Commerce and Management, 25(4), 370–384. https://doi.org/10.1108/IJCoMA-01-2013-0002
  • Pan, C. H., & Statman, M. (2012). Investor Personality in Investor Questionnaires. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2022339
  • Pinjisakikool, T. (2018). The Influence of Personality Traits on Households' Financial Risk Tolerance and Financial Behaviour. Journal of Interdisciplinary Economics, 30(1), 32–54. https://doi.org/10.1177/0260107917731034
  • Rahman, M. (2019). Propensity toward financial risk tolerance: An analysis using behavioural factors. Review of Behavioral Finance, 12(3), 259–281. https://doi.org/10.1108/RBF-01-2019-0002
  • Rahman, M., Albaity, M., & Isa, C. R. (2019). Behavioural propensities and financial risk tolerance: The moderating effect of ethnicity. International Journal of Emerging Markets, 15(4), 728– 745. https://doi.org/10.1108/IJOEM-01-2018-0024
  • Rai, K., Gupta, A., & Tyagi, A. (2021). Personality Traits Leads to Investor's Financial Risk Tolerance: A Structural Equation Modelling Approach. Management and Labour Studies, 46(4), 422–437. https://doi.org/10.1177/0258042X211018955
  • Reddy, K. S., & Mahapatra, M. S. (2017). Risk tolerance, personal financial knowledge and demographic characteristicsevidence from India. The Journal of Developing Areas, 51(3), 51–62. https://doi.org/10.1353/jda.2017.0060
  • Sadi, R., Asl, H. G., Rostami, M. R., Gholipour, A., & Gholipour, F. (2011). Behavioral Finance: The Explanation of Investors' Personality and Perceptual Biases Effects on Financial Decisions. International Journal of Economics and Finance, 3(5), p234. https://doi.org/10.5539/ijef.v3n5p234
  • Sadiq, M., & Amna, H. (2019). Impact of Personality Traits on Risk Tolerance and Investors' Decision Making: International Journal of Applied Behavioral Economics, 8(1), 1–20. https://doi.org/10.4018/IJABE.2019010101
  • Sadiq, M. N., & Akhtar, M. (2019). The Relationship of Investor's Demographic Traits and Personality Type with Financial Risk Tolerance in Investment Decisions. Sukkur IBA Journal of Management and Business, 6(1), 87–107. https://doi.org/10.30537/sijmb.v6i1.449
  • Samanez-Larkin, G. R., Mottola, G., Heflin, D., Yu, L., & Boyle, P. (2020). Overconfidence in financial knowledge associated with financial risk tolerance in older adults [Preprint]. PsyArXiv. https://doi.org/10.31234/osf.io/p5gec
  • Şen, S. (2022). Narcissistic Personality and Financial Risk Tolerance: An Exploratory Study in Turkey. International Journal of Applied Behavioral Economics, 11(1), 1–17. https://doi.org/10.4018/IJABE.295862
  • Shah, N. H., Khalid, W., Khan, S., Arif, M., & Khan, M. A. (2020). AN EMPIRICAL ANALYSIS OF FINANCIAL RISK TOLERANCE AND DEMOGRAPHIC FACTORS OF BUSINESS GRADUATES IN PAKISTAN. International Journal of Economics and Financial Issues, 10(4), 220–234. https://doi.org/10.32479/ijefi.9365
  • Shusha, A. (2017). Does Financial Literacy Moderate the Relationship among Demographic Characteristics and Financial Risk Tolerance? Evidence from Egypt. Australasian Accounting, Business and Finance Journal, 11(3), 67–86. https://doi.org/10.14453/aabfj.v11i3.6
  • Silvia Sutejo, B., Kokoh Natan Pranata, Y., & Anom Mahadwartha, P. (2018). Demography factors, financial risk tolerance, and retail investors. Proceedings of the 15th International Symposium on Management (INSYMA 2018). 15th International Symposium on Management (INSYMA 2018), Chonburi, Thailand. https://doi.org/10.2991/insyma-18.2018.20
  • Singh, Y., Adil, Mohd., & Haque, S. M. I. (2022). Personality traits and behaviour biases: The moderating role of risk-tolerance. Quality & Quantity. https://doi.org/10.1007/s11135-022-01516-4
  • Sulaiman, E. K. (2012). An Empirical Analysis of Financial Risk Tolerance and Demographic Features of Individual Investors. Procedia Economics and Finance, 2, 109–115. https://doi.org/10.1016/S2212-5671(12)00070-6
  • Thanki, H. (2015). Risk Tolerance Dependent on What? Demographics or Personality Type: Findings from an Empirical Research. Journal of Marketing and Consumer Research, 6(1), 9.
  • Thanki, H., & Baser, N. (2019). Interactive Impact of Demographic Variables and Personality Type on Risk Tolerance. Emerging Economy Studies, 5(1), 42–54. https://doi.org/10.1177/2394901519825924
  • Thanki, H., Shah, S., Sapovadia, V., Oza, A. D., & Burduhos-Nergis, D. D. (2022). Role of Gender in Predicting Determinant of Financial Risk Tolerance. Sustainability, 14(17), 10575. https://doi.org/10.3390/su141710575
  • Vaibhav, J., & Mehak, K. (2020). Impact of personality on risk tolerance. The International Journal of Indian Psychology, 8(4), 8. https://doi.org/10.25215/0804.106
  • Wasiuzzaman, S., & Edalat, S. (2016). Personality, risk tolerance and social network use: An exploratory study. Managerial Finance, 42(6), 536–552. https://doi.org/10.1108/MF-05-2015-0159
  • Wong, A., & Carducci, B. (2016). Do sensation seeking, control orientation, ambiguity, and dishonesty traits affect financial risk tolerance? Managerial Finance, 42(1), 34–41. https://doi.org/10.1108/MF-09-2015-0256