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Risk Appetite and Hedging Strategies: The Impact of Age Cohorts in Financial Markets

Author

Listed:
  • M. Aravind
  • C. G. Manojkrishnan

    (Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School)

Abstract

The financial instruments are subject to market risk, and the degree of risk may differ. Numerous demographic and behavioral factors determine the willingness of retail investors to face market risk. This work examines the direct effect of investors' risk appetite on their risk mitigation strategies and the indirect effect of investors' risk appetite on hedging strategies through financial intermediaries. In both situations, the age cohort is fixed as a moderator. The data consists of 612 active stock market investors across India. The analysis has established partial mediation in the indirect path. The investors aged 26–40 appear to be risk-oriented, whereas those above 60 reported being risk-averse. These results show that risk appetite decreases with age, and people prefer stable returns to volatility as their age progresses. This research points to policymakers and intermediaries to design portfolio management services that fit the investors' age group.

Suggested Citation

  • M. Aravind & C. G. Manojkrishnan, 2024. "Risk Appetite and Hedging Strategies: The Impact of Age Cohorts in Financial Markets," Post-Print hal-04846849, HAL.
    • Handle: RePEc:hal:journl:hal-04846849
    DOI: 10.1080/23322039.2024.2382354
    Note: View the original document on HAL open archive server: https://hal.science/hal-04846849v1
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    References listed on IDEAS

    as
    1. Matteo Maggiori, 2017. "Financial Intermediation, International Risk Sharing, and Reserve Currencies," American Economic Review, American Economic Association, vol. 107(10), pages 3038-3071, October.
    2. Agarwal, Vikas & Boyson, Nicole M. & Naik, Narayan Y., 2009. "Hedge Funds for Retail Investors? An Examination of Hedged Mutual Funds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(2), pages 273-305, April.
    3. Grable, John & Lytton, Ruth H., 1999. "Financial risk tolerance revisited: the development of a risk assessment instrument," Financial Services Review, Elsevier, vol. 8(3), pages 163-181.
    Full references (including those not matched with items on IDEAS)

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