Understanding the Determinants of Investor’s Subjective Risk Perception and Their Divergence from the Investor’s Objective Risk

This paper investigates the determinants of investors’ subjective risk profiles and the factors associated with the divergence between subjective and objective risk. Using a proprietary dataset of 1,077 investors provided by a major Italian bank, we analyse risk profiles derived from MiFID suitability assessments and compare them with an ex-post indicator of portfolio–profile alignment. First, ordered logit models show that gender, financial wealth, financial knowledge and experience, and investment horizon are significant predictors of subjective risk tolerance, while age, occupation, and ESG attitudes play a limited role. Second, we examine the persistence of portfolio suitability over time and find that the determinants of ex-post alignment differ from those of subjective risk. Wealth emerges as the most stable predictor of portfolio–profile coherence, while the effects of financial knowledge and investment horizon become weaker. The findings highlight the limitations of static risk profiling and suggest that maintaining long-term portfolio suitability depends on factors extending beyond initial investor characteristics.