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Article
Publication date: 31 December 2015

Do sensation seeking, control orientation, ambiguity, and dishonesty traits affect financial risk tolerance?

Alan Wong and Bernie Carducci

The purpose of this paper is to determine relationships between financial risk tolerance and the personality traits of sensation-seeking, locus of control, ambiguity…

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Abstract

Purpose

The purpose of this paper is to determine relationships between financial risk tolerance and the personality traits of sensation-seeking, locus of control, ambiguity tolerance, and financial dishonesty.

Design/methodology/approach

A pretested questionnaire was used to gather information from 255 respondents. With risk tolerance as a criterion variable and the four personality traits as predictor variables, a regression procedure was performed to determine which variables contributed to the variability of the criterion variable and the extent of such contribution. An analysis was also done to find out whether gender, age, GPA, and academic standing had an influence on each personality trait’s contribution to risk tolerance.

Findings

Risk tolerance is directly related to sensation-seeking and the link is so strong that it is not mitigated by the effects of gender, age, GPA, and college academic standings. As for locus of control, the more one believes one has control over one’s outcome, the higher risk one can tolerate. Surprisingly, there is no relationship between risk and ambiguity tolerances. Dishonesty also does not affect risk tolerance behavior. However, the relationship is found to exist among younger individuals and those with lower GPA, possibly due to not having reached an adequate level of matured or critical reasoning yet.

Originality/value

The relationship between risk tolerance and sensation-seeking is an established fact but whether the relationship still holds across several demographic groups is part of this study’s focus. Although much has been done on risk tolerance, very little has been done on its relationship to locus of control, ambiguity tolerance, and financial dishonesty.

Details

Managerial Finance, vol. 42 no. 1
Type: Research Article
DOI: https://doi.org/10.1108/MF-09-2015-0256
ISSN: 0307-4358

Keywords

  • Locus of control
  • Sensation-seeking
  • Ambiguity tolerance
  • Financial dishonesty
  • Financial risk tolerance

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Article
Publication date: 1 June 2020

Run for the hills: Italian investors' risk appetite before and during the financial crisis

Andrea Lippi and Simone Rossi

This paper sets out to corroborate the existing literature on investors' risk tolerance and to assess how the 2008 financial crisis has affected risk tolerance among…

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Abstract

Purpose

This paper sets out to corroborate the existing literature on investors' risk tolerance and to assess how the 2008 financial crisis has affected risk tolerance among Italian investors.

Design/methodology/approach

Based on a unique dataset of real-world portfolio choices made by 1,245 Italian investors over a period of 15 years (from 2003 to 2017), this paper presents two steps of analysis. In step 1, the whole period 2003–2017 is considered with the aim to integrate and corroborate the existing literature on the topic of risk tolerance, considering a complete economic and financial cycle. Step 2 took 2008 as the pivotal point between pre-crisis (2003–2008) and crisis (2009–2017) with the aim to observe the influence on risk appetite of the economic and financial effects of the crisis.

Findings

The results obtained confirm that men are more risk tolerant than women and older people are less risk-taking than their younger counterparts, although the relationship between age and risk tolerance is not necessarily linear. Moreover, our paper demonstrates that a crisis scenario has an influence on Italian investors' risk tolerance.

Practical implications

Our results are of interest to financial advisors, financial planners, asset managers, psychologists, behavioral researchers and more in general to providers of financial products and services.

Originality/value

The results presented in this paper are relevant and original because they are based on real investors who made real choices concerning their portfolio asset allocations.

Details

International Journal of Bank Marketing, vol. 38 no. 5
Type: Research Article
DOI: https://doi.org/10.1108/IJBM-02-2020-0058
ISSN: 0265-2323

Keywords

  • Decision making
  • Risk tolerance
  • Risk appetite
  • Financial crisis effects

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Article
Publication date: 3 October 2016

Risk tolerance and rationality in the case of retirement savings

Tchai Tavor and Sharon Garyn-Tal

This research aims to examine the decision-making process involved in saving for retirement and compare it with decision-making processes regarding other financial…

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Abstract

Purpose

This research aims to examine the decision-making process involved in saving for retirement and compare it with decision-making processes regarding other financial products (such as loans and savings plans) as well as real products (such as a car or a home).

Design/methodology/approach

This research is based on the distribution of 107 questionnaires. The questionnaire is composed of two parts: questions examining and focusing on the individual’s decision-making process and questions regarding socioeconomic factors. The average level of risk tolerance is calculated for each respondent with respect to the first four chapters. (These chapters include buying a car or a home, opening a savings plan and taking a loan). Afterward, the consistency (rationality) of the respondents is examined with regard to their decision-making concerning retirement savings plans. Then, an econometric model is used to further test the consistency of the respondents.

Findings

The results suggest that the level of risk tolerance associated with a retirement savings plan is consistent with that associated with the other financial products, but not with the real products. Majority of the respondents demonstrate high risk tolerance with respect to retirement savings, and their decision-making process is similar to a random thinking process. The level of deliberation and information-gathering regarding retirement savings is the lowest when compared with the other financial and real products examined in this paper. Majority of the respondents are less risk-tolerant toward the other financial and real products.

Originality/value

In this research, the authors examine how different individuals with different characteristics get different decisions about their personal retirement savings. The authors also examine these decisions’ deviation from the rational model, and compare it with decision-making processes regarding other financial products as well as real products.

Details

Studies in Economics and Finance, vol. 33 no. 4
Type: Research Article
DOI: https://doi.org/10.1108/SEF-10-2015-0240
ISSN: 1086-7376

Keywords

  • Decision making process
  • Retirement savings
  • Risk attitudes
  • Risk perception
  • Risk tolerant

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Article
Publication date: 13 June 2016

Personality, risk tolerance and social network use: an exploratory study

Shaista Wasiuzzaman and Siavash Edalat

The vast amount of information available via online social networks (OSN) makes it a very good avenue for understanding human behavior. One of the human characteristics of…

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Abstract

Purpose

The vast amount of information available via online social networks (OSN) makes it a very good avenue for understanding human behavior. One of the human characteristics of interest to financial practitioners is an individual’s financial risk tolerance. The purpose of this paper is to look at the relationship between an individual’s OSN behavior and his/her financial risk tolerance.

Design/methodology/approach

The study uses data collected from a sample of 220 university students and the backward variables selection ordinary least squares regression analysis technique to achieve its objective.

Findings

The results of the study find that the frequency of logging on to social network sites indicates an individual who has higher financial risk tolerance. Additionally, the increasing use of social networks for social connection is found to be associated with lower financial risk tolerance. The results are mostly consistent when the sample is split based on prior financial knowledge.

Originality/value

To the authors’ knowledge this is the first study which documents the possibility of understanding an individual’s financial risk tolerance via his/her social network activity. This provides investment/financial consultants with more avenues for gathering information in order to understand their current or potential clients hence providing better services.

Details

Managerial Finance, vol. 42 no. 6
Type: Research Article
DOI: https://doi.org/10.1108/MF-05-2015-0159
ISSN: 0307-4358

Keywords

  • Online social networks
  • Financial risk tolerance
  • Human behaviour

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Article
Publication date: 15 August 2016

RiskTRACK: the five-factor model for measuring risk tolerance

Hunter Matthew Holzhauer, Xing Lu, Robert McLeod and Jun Wang

Currently, few academics agree on a standard and scientific way to measure risk tolerance. This paper aims to create a unique model for empirically measuring risk tolerance…

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Abstract

Purpose

Currently, few academics agree on a standard and scientific way to measure risk tolerance. This paper aims to create a unique model for empirically measuring risk tolerance and to make a strong contribution to the growing literature in risk tolerance and risk management.

Design/methodology/approach

The authors use factor analysis and regression analysis to identify relevant factors for measuring risk tolerance.

Findings

The risk tolerance model is based on the acronymed model riskTRACK, which includes the five significant factors this paper identifies for measuring risk tolerance: traditional risk factor, reflective risk factor, allocation risk factor, capacity risk factor and knowledge risk factor.

Research limitations/implications

Uses for future research streams devoted to risk tolerance and risk management.

Practical implications

The results also have practical applications for the financial services industry, particularly risk management, portfolio management and financial planning.

Originality/value

In sum, this research expands previous research in risk tolerance and also adds to the growing literature in risk management. Once again, this paper is unique in that the authors develop a valid and reliable risk tolerance model based on five specific factors for measuring risk tolerance.

Details

The Journal of Risk Finance, vol. 17 no. 4
Type: Research Article
DOI: https://doi.org/10.1108/JRF-04-2016-0054
ISSN: 1526-5943

Keywords

  • Risk management
  • Factor analysis
  • Risk tolerance
  • G11
  • G20

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Article
Publication date: 21 December 2020

Do sociodemographic factors have influence on risk tolerance level of stock market investors? An analysis from a developing country perspective

Dewan Muktadir-Al-Mukit

The study attempts to assess the relationship between sociodemographic factors and the risk tolerance level of stock market investors reflected by their trading behavior…

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Abstract

Purpose

The study attempts to assess the relationship between sociodemographic factors and the risk tolerance level of stock market investors reflected by their trading behavior from the perspective of developing market economy.

Design/methodology/approach

The study collected data from a survey on capital market investors in Bangladesh. Portfolio beta has been used as a dependent variable to measure the risk tolerance level where total 11 sociodemographic factors have been used as independent variables.

Findings

Among all study variables, three sociodemographic factors are found to be significant in differentiating the risk tolerance level of the stock market investors. The author finds that the risk tolerance level of stock market investors significantly varies according to marital status, family size and financial responsibility.

Practical implications

As sociodemographic characteristics provide a basis in assessing the investor risk tolerance level in the context of developing market economies, the study suggests that stock market related policy and investment management planning process should be formulated by incorporating behavioral aspects of the retail investors.

Originality/value

This study has the potential to contribute to the behavioral finance literature by showing how and at what extent sociodemographic factors may influence the risk tolerance level of stock market investors in developing countries, where sociodemographic factors are considered to be more dominating than the normative portfolio selection procedure because of lacking in investors' financial literacy and due to the presence of a weak regulatory as well as institutional framework. Further, apart from identifying and comprehensively incorporating all possible sociodemographic factors, this study uses portfolio beta as a new objective measure for financial risk tolerance, which overcomes the problem of subjective and other risk tolerance measurement in the existing literature.

Details

South Asian Journal of Business Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
DOI: https://doi.org/10.1108/SAJBS-11-2019-0193
ISSN: 2398-628X

Keywords

  • Investor behavior
  • Risk tolerance
  • Sociodemographic factors
  • Developing country

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Article
Publication date: 22 April 2010

The Influence of Political Orientation on Financial Risk Taking

Jeremy Moore, James Felton and Colby Wright

We analyze the correlation between the political orientation of investors and their financial risk tolerance. Assessing financial risk tolerance is a very important aspect…

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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.

Details

American Journal of Business, vol. 25 no. 1
Type: Research Article
DOI: https://doi.org/10.1108/19355181201000003
ISSN: 1935-5181

Keywords

  • Risk tolerance
  • Political orientation

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Article
Publication date: 11 November 2019

The effects of equity financing and debt financing on technological innovation: Evidence from developed countries

Ling Zhang, Sheng Zhang and Yingyuan Guo

The purpose of this paper is to compare the effects of equity financing and debt financing on technological innovation, and prove that the enhancement of a financing…

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Abstract

Purpose

The purpose of this paper is to compare the effects of equity financing and debt financing on technological innovation, and prove that the enhancement of a financing system’s risk tolerance for technological innovation can enhance the innovation risk preference of enterprises and thus promote innovation.

Design/methodology/approach

This study is based on a transnational sample of 35 developed countries from 1996 to 2015, by using the panel econometric model to empirically examine the effects of two financing modes on innovation.

Findings

The findings showed that equity financing, which has higher risk tolerance, has a more positive impact on innovation than debt financing in terms of both economic uptrend and economic downtrend, and that government efficiency plays a significant role in supporting the performance of technological innovation.

Originality/value

The paper provides a research framework for examining how a financing system’s risk tolerance capacity affects the development of technological innovation through promoting risk preference among enterprises. This paper provides transnational and cross-cycle comparative evidence that equity financing with a strong risk tolerance capacity can better support technological innovation, even in periods of economic downtrend. Moreover, the importance of financing system’s risk tolerance capacity for innovation during economic crises is discussed.

Details

Baltic Journal of Management, vol. 14 no. 4
Type: Research Article
DOI: https://doi.org/10.1108/BJM-01-2019-0011
ISSN: 1746-5265

Keywords

  • Innovation performance
  • Equity financing
  • Debt financing
  • Technological innovation
  • Risk tolerance

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Article
Publication date: 1 July 2019

Relationship between novice versus experienced EFL teacher’s Big Five personality traits and their ambiguity tolerance and risk taking

Omid Rezaei, Mehrdad Vasheghani Farahani and Fatemeh Musaei Sejzehei

The purpose of this paper is to investigate the possible relationship between novice vs experienced EFLs teachers’ Big Five personality traits, ambiguity tolerance and risk…

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Abstract

Purpose

The purpose of this paper is to investigate the possible relationship between novice vs experienced EFLs teachers’ Big Five personality traits, ambiguity tolerance and risk taking. To this purpose, 30 teachers of TEFL courses were randomly selected, and three instruments of NEO Five-Factor Inventory, Ambiguity Tolerance Scale and Risk-taking Propensity Measure were employed to measure their Big Five personality traits, their ambiguity tolerance and risk taking, respectively.

Design/methodology/approach

The study was a quantitative ex post facto study. The first phase of the study was to investigate the relationship among variables of the study. On the other hand, the second phase of the study examined the impact of experience of teachers on their risk taking and ambiguity tolerance.

Findings

The results showed that the more experienced the teachers are, the less risk they take and the more ambiguity tolerant they are. On the other hand, the less experienced the teachers are, the more risk they will take and the less they can tolerate ambiguity. The findings of this research can have useful implications for teacher training programs as well as teaching practices.

Originality/value

This study can add to the circle of knowledge and enhance theoretical assumptions of the field. Moreover, considering the Iranian context, a few studies have focused on the importance of uncovering relationship between five big personality traits and teachers’ personality factors. Therefore, this study is an attempt to investigate the relationship between the Big Five personality traits of teachers and their ambiguity tolerance and risk taking.

Details

Journal of Applied Research in Higher Education, vol. 11 no. 3
Type: Research Article
DOI: https://doi.org/10.1108/JARHE-08-2018-0172
ISSN: 2050-7003

Keywords

  • Risk taking
  • Tolerance
  • Ambiguity
  • Big Five personality traits
  • Experienced teachers
  • Novice teachers

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Book part
Publication date: 28 November 2017

Application of Materiality

Francesco Bellandi

Part IV provides readers with the extant requirements for the application of materiality to recognition, measurement, presentation, and disclosure in the financial…

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Abstract

Part IV provides readers with the extant requirements for the application of materiality to recognition, measurement, presentation, and disclosure in the financial statements. This part also includes a detailed critical review of the recent Practice Statement on materiality, the FASB’s proposed ASU on the notes and the amendments to the Conceptual Framework proposed by the IASB and the FASB.

The part expands to issues that are typical of Management Commentary, including the SEC guidance on materiality in Management Discussion and Analysis.

It informs about the complexities and subtle differences between financial statements and bookkeeping and the different standards of reasonableness versus materiality.

A section moves from materiality to material misstatements and covers the application of materiality in auditing.

Another section goes in depth on internal control over financial reporting, showing the linkages between materiality and risk appetite and risk tolerance and the related application guidance.

Details

Materiality in Financial Reporting
Type: Book
DOI: https://doi.org/10.1108/978-1-78743-736-420171010
ISBN: 978-1-78743-736-4

Keywords

  • Audit
  • disclosure
  • ICOFR
  • MD&A
  • measurement
  • recognition

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