The Impact of Demographic Factors on Subjective Financial Risk Tolerance: a South African Study
Year: 2011
Type: dissertation
Study design: Observational Study
Abstract: Financial risk tolerance, an investor’s appetite for financial risk, is an extremely \nimportant aspect that needs to be considered when constructing investment portfolios. \nEvidence as to how risk tolerance should be measured is mixed, with each method \nhaving its own strengths and weaknesses. It can be determined both objectively and \nsubjectively, depending on the method used, and can be influenced by a variety of \ndemographic characteristics. Debate as to how certain demographic factors influence \nrisk tolerance is widespread, providing support for further study in this field, \nparticularly from a South African perspective. \nThe purpose of this study was to investigate to what extent demographic factors \ninfluenced an individual’s willingness to take on levels of financial risk. The study used \nan existing, but adapted, subjective questionnaire to determine the risk tolerance levels \nof a sample of respondents. Respondents were categorised at an aggregate level as \neither being below or above average risk tolerant. A Binary Logistic model was used to \nanalyse the effect of the independent demographic variables on risk tolerance and it was \nfound that age and gender were significantly related to risk tolerance, whilst there was \nmixed evidence as to the relationship between risk tolerance and race as well as income. \nThe findings from the study provide new evidence from a wider South African sample \nand could be used by financial advisors to improve their understanding of risk tolerance \nand its demographic determinants, as well as companies wishing to align their \nemployees’ risk profiles with the overall company risk profile, as examples.
Author: Craig. Metherell
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2160003965