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Is financial risk tolerance influenced by personality traits?

Author

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  • Susara Johanna Ferreira

    (North West University)

Abstract

Financial risk tolerance refers to the degree of uncertainty an investor is willing to accept, and can often be influenced by individual characteristics. However, personal psychological preferences play a prominent role in an investor?s judgement and relationship with their finances. Limited research has been done on investors to see whether their type of personality will influence the level of risk they are willing to tolerate and ultimately the performance of their asset portfolios. Therefore, this article aids toward the contribution in understanding how personality traits can influence financial decision-making. The secondary data for this article was purposefully collected by an investment company using a quantitative questionnaire, which was electronically distributed to 600 investors within the South African market. The results of this study indicated that different personalities prefer different levels of risk. Individuals who are more open to experience, indicated a significant difference in risk tolerance levels compared to other personality types. The results for this article were comparable to previous research where only some of the personality traits play a role in investment decisions.

Suggested Citation

  • Susara Johanna Ferreira, 2019. "Is financial risk tolerance influenced by personality traits?," Proceedings of Economics and Finance Conferences 9511451, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iefpro:9511451
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    File URL: https://iises.net/proceedings/12th-economics-finance-conference-dubrovnik/table-of-content/detail?cid=95&iid=005&rid=11451
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    References listed on IDEAS

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    1. Cobb-Clark, Deborah A. & Schurer, Stefanie, 2012. "The stability of big-five personality traits," Economics Letters, Elsevier, vol. 115(1), pages 11-15.
    2. M Kannadhasan & S Aramvalarthan & S K Mitra & Vinay Goyal, 2016. "Relationship between Biopsychosocial Factors and Financial Risk Tolerance: An Empirical Study," Vikalpa: The Journal for Decision Makers, , vol. 41(2), pages 117-131, June.
    3. Blume, Marshall E, 1971. "On the Assessment of Risk," Journal of Finance, American Finance Association, vol. 26(1), pages 1-10, March.
    4. Paul J. H. Schoemaker, 1990. "Are Risk-Attitudes Related Across Domains and Response Modes?," Management Science, INFORMS, vol. 36(12), pages 1451-1463, December.
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    Cited by:

    1. Kamini Rai & Abha Gupta & Anshu Tyagi, 2021. "Personality Traits Leads to Investor’s Financial Risk Tolerance: A Structural Equation Modelling Approach," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 46(4), pages 422-437, November.

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    More about this item

    Keywords

    Risk tolerance; personality traits; gender; investment decisions;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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