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A longitudinal study of financial risk tolerance

Author

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  • Van de Venter, Gerhard
  • Michayluk, David
  • Davey, Geoff

Abstract

Academics are divided as to whether financial risk tolerance is an enduring psychological trait and as a consequence is less likely to change over the life of an individual, or a variable psychological state which varies readily in response to internal and external influences. In this study we report the findings of a longitudinal study that investigates the annual change in financial risk tolerance scores of individuals over a 5year period and the factors that influence such change. Our results indicate a relatively small annual change in individuals’ financial risk tolerance. Although our regression model is ineffective in providing a clarification for a change in the financial risk tolerance scores of individual respondents, we find a slight decrease in financial risk tolerance associated with a decrease in household size and an increase in financial risk tolerance after terminating the services of a financial planner. From our results we propose that financial risk tolerance is a stable personality trait and is unlikely to change substantially over the life of an individual.

Suggested Citation

  • Van de Venter, Gerhard & Michayluk, David & Davey, Geoff, 2012. "A longitudinal study of financial risk tolerance," Journal of Economic Psychology, Elsevier, vol. 33(4), pages 794-800.
    • Handle: RePEc:eee:joepsy:v:33:y:2012:i:4:p:794-800
    DOI: 10.1016/j.joep.2012.03.001
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    References listed on IDEAS

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    4. Clifford B. Hawley & Edwin T. Fujii, 1993. "An Empirical Analysis of Preferences for Financial Risk: Further Evidence on the Friedman–Savage Model," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 16(2), pages 197-204, December.
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    More about this item

    Keywords

    Financial risk tolerance; Risk assessment; Financial planning; Longitudinal study;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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