Factors Associated With Financial Risk Tolerance Based on Proportional Odds Model: Evidence From Sweden

2017 ◽  
Vol 28 (1) ◽  
pp. 155-164 ◽  
Author(s):  
Manuchehr Irandoust
Keyword(s):  
Financial Literacy ◽  
Financial Stability ◽  
Financial Risk ◽  
Risk Tolerance ◽  
Proportional Odds Model ◽  
Specific Information ◽  
Proportional Odds ◽  
Model Evidence ◽  
Portfolio Structure ◽  
Financial Risk Tolerance

Is the way that individuals make risky financial choices, or tradeoffs over time, related to demographic characteristics? This article attempts to examine whether there is a link between demographic variables, risk aversion, and impatience using a randomly drawn sample of the population in Sweden. Based on a proportional odds model, the findings show that willingness to take financial risk depends on portfolio structure, gender, age, educational attainment, income, financial stability, financial literacy, marital status, and family size. Financial counselors are encouraged to use the variables related to financial risk tolerance discussed in this article whenever developing portfolios or in calculations that require specific information about a person’s willingness to take financial risk.

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

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Umi Widyastuti ◽  
Erie Febrian ◽  
Sutisna Sutisna ◽  
Tettet Fitrijanti
Keyword(s):  
Mutual Funds ◽  
Behavioral Finance ◽  
Financial Literacy ◽  
Financial Risk ◽  
Market Discipline ◽  
Risk Tolerance ◽  
Exogenous Variables ◽  
Content Type ◽  
Withdrawal Behavior ◽  
Financial Risk Tolerance

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.

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

2021 ◽  
Vol 4 (1) ◽  
pp. 11-22
Author(s):  
Kevin Hendarto ◽  
Njo Anastasia ◽  
Sautma Ronni Basana
Keyword(s):  
Financial Literacy ◽  
Millennial Generation ◽  
Financial Risk ◽  
Investment Decisions ◽  
Risk Tolerance ◽  
Equation Modeling ◽  
Financial Socialization ◽  
Stock Investment ◽  
Socialization Agents ◽  
Financial Risk Tolerance

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.

scholarly journals Overconfidence in financial knowledge associated with financial risk tolerance in older adults

2020 ◽  
Author(s):  
Gregory Russell Samanez-Larkin ◽  
Gary Mottola ◽  
Darby Heflin ◽  
Lei Yu ◽  
Patricia Boyle
Keyword(s):  
Older Adults ◽  
Cognitive Impairment ◽  
Risk Aversion ◽  
Risk Taking ◽  
Financial Literacy ◽  
Financial Risk ◽  
Risk Tolerance ◽  
Older Age ◽  
Financial Knowledge ◽  
Financial Risk Tolerance

Taking excessive financial risk in older age can have harmful, far-reaching consequences as opportunities to recover lost wealth are limited. Better understanding the mechanisms of financial risk taking in older age is critically important for both identifying vulnerabilities in certain older adults and for developing interventions to empower aging investors to make wise financial choices into the most advanced ages. The goals of the present study were to identify age differences in financial literacy, confidence in financial knowledge, and risk taking and how literacy and confidence were related to financial risk taking across older adults with and without cognitive impairment (ages 58–101). Using cross-sectional data from the Rush Memory and Aging Project, analyses revealed that risk aversion was higher and self-reported willingness to take financial risks was lower at older ages. Financial literacy was similar across the sixties and seventies but lower at the oldest ages. However, confidence in financial knowledge was not associated with age when controlling for financial literacy. In exploratory analyses, a measure of overconfidence in financial knowledge was positively associated with self-reported financial risk tolerance but not a behavioral measure of risk aversion. The overconfidence effect on risk tolerance did not vary across individuals with no cognitive impairment or Mild Cognitive Impairment (MCI). Overconfidence accounted for about 6% of the variance in financial risk tolerance. The present results suggest that overconfidence may contribute to risky financial behavior. Calibration of confidence levels to actual literacy is a potential target for future interventions aimed at protecting senior investors.

scholarly journals Financial Literacy and Financial Risk Tolerance of Individual Investors: Multinomial Logistic Regression Approach

SAGE Open ◽  
2020 ◽  
Vol 10 (3) ◽  
pp. 215824402094571
Author(s):  
Yılmaz Bayar ◽  
H. Funda Sezgin ◽  
Ömer Faruk Öztürk ◽  
Mahmut Ünsal Şaşmaz
Keyword(s):  
Logistic Regression ◽  
Financial Literacy ◽  
Financial Risk ◽  
Multinomial Logistic Regression ◽  
Demographic Characteristics ◽  
Risk Tolerance ◽  
Financial Investment ◽  
Multinomial Logistic Regression Analysis ◽  
The Impact ◽  
Financial Risk Tolerance

Financial risk tolerance is one of the important factors affecting the financial investment decisions of individuals and institutional investors and a crucial factor of financial planning and financial counseling. It is therefore necessary to determine the major determinants of risk tolerance. In this article, we researched the impact of financial literacy level and demographic characteristics on the financial risk tolerance of the individuals in the sample of Usak University staff, using a multinomial logistic regression analysis and retrieving data through the questionnaire method. Multinomial logistic regression is an extension of binary logistic regression, allowing for three or more categories of the dependent variable. The findings of the empirical analysis reveal that financial literacy and demographic characteristics of age, gender, education, and income levels are significant determinants of financial risk tolerance. In this regard, the improvements in the financial literacy of the individuals through various education programs will probably raise the demand of financial products with different risk characteristics and in turn contribute to the development of financial sector.

scholarly journals A test of the association between the initial surge in COVID-19 cases and subsequent changes in financial risk tolerance

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Wookjae Heo ◽  
John E. Grable ◽  
Abed G. Rabbani
Keyword(s):  
Young People ◽  
Financial Literacy ◽  
Financial Risk ◽  
Risk Tolerance ◽  
Service Firms ◽  
Significant Drop ◽  
Content Type ◽  
Health Situation ◽  
Financial Risk Tolerance ◽  
Practical Implications

PurposeThe purpose of this paper is to provide an estimate of the degree to which financial risk tolerance changed in relation to the initial surge of COVID-19 cases in the US.Design/methodology/approachData from a large sample of investors and other consumers covering the period beginning April 2019 and ending in early May 2020 were used to estimate aggregate levels of financial risk tolerance and to determine if the willingness to take financial risk changed across five distinct periods in relation to the spread of COVID-19.FindingsA general reduction in aggregate levels of financial risk tolerance was observed during the initial peak of COVID-19 period and the subsequent declaration of a pandemic, with the most significant drop in risk tolerance being exhibited by those who were 25 years of age or younger.Practical implicationsThe findings from this study – primarily that in terms of FRT, the COVID-19 pandemic impacted young people disproportionately – suggest that in addition to helping young people feel comfortable in terms of their personal health situation and access to employment and health insurance, policy makers, financial service firms and financial literacy educators should provide information and guidance to young people regarding why being willing to take financial risks is important and how FRT corresponds to the proper functioning of the investment markets.Originality/valueA data-drive methodology was utilized in this study to define the periods. This approach was taken due to the lack of defined and published pandemic interval periods specific to COVID19. However, the findings based on the data-driven methodology bring practical implications such as young people are sincerely considered in the catastrophic situation.

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