The Influence of Political Orientation on Financial Risk Taking

Abstract

We analyze the correlation between the political orientation of investors and their financial risk tolerance. Assessing financial risk tolerance is a very important aspect to developing an appropriate long‐term investing strategy. Our study is based on a sample of 129 undergraduates at Central Michigan University during one academic year. We employ a two‐axis political compass to determine the political orientation of our study participants. We determine their financial risk tolerance by analyzing their portfolios and trading behavior in a simulated investment game in a semester long course. We report two main findings: (1) financial risk tolerance is highest for those with more conservative economic political views and (2) financial risk tolerance is highest for those with more centrist social political views. We believe our results can help investment advisors and individual investors better assess individual financial risk tolerance through the use of the two‐axis political compass utilized in our study.

Citation

Moore, J., Felton, J. and Wright, C. (2010), "The Influence of Political Orientation on Financial Risk Taking", American Journal of Business, Vol. 25 No. 1, pp. 35-44. https://doi.org/10.1108/19355181201000003