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

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  • Yılmaz Bayar
  • H. Funda Sezgin
  • Ömer Faruk Öztürk
  • Mahmut Ãœnsal ÅžaÅŸmaz

Abstract

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.

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  • Yılmaz Bayar & H. Funda Sezgin & Ömer Faruk Öztürk & Mahmut Ãœnsal ÅžaÅŸmaz, 2020. "Financial Literacy and Financial Risk Tolerance of Individual Investors: Multinomial Logistic Regression Approach," SAGE Open, , vol. 10(3), pages 21582440209, July.
    • Handle: RePEc:sae:sagope:v:10:y:2020:i:3:p:2158244020945717
    DOI: 10.1177/2158244020945717
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    3. Saira Asif & Muhammad Rizwan Yaseen & Sofia Anwar & Muhammad Faraz Riaz, 2024. "Impact of Socio Economic, Demographic and Psychological Factors on Risk Taking Behavior: A Case Study of Punjab," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(3), pages 102-108.
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    7. Jaheera Thasleema Abdul Lathief & Sunitha Chelliah Kumaravel & Regina Velnadar & Ravi Varma Vijayan & Satyanarayana Parayitam, 2024. "Quantifying Risk in Investment Decision-Making," JRFM, MDPI, vol. 17(2), pages 1-20, February.
    8. Stoian, Andreea & Vintila, Nicoleta & Iorgulescu, Filip & Cepoi, Cosmin Octavian & Dina Manolache, Aurora, 2021. "How Risk Aversion and Financial Literacy Shape Young Adults’ Investment Preferences," MPRA Paper 109755, University Library of Munich, Germany.
    9. Ali, Muhammad Arsalan & Rehman, Khalil ur & Maqbool, Adnan & Hussain, Shahid, 2021. "The Impact of Behavioral Finance Factors and the Mediating Effect of Investment Behavior on Individual’s Financial Well-being: Empirical Evidence from Pakistan," Journal of Accounting and Finance in Emerging Economies, CSRC Publishing, Center for Sustainability Research and Consultancy Pakistan, vol. 7(2), pages 325-336, June.
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