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Determinants of Risk-Suitable Investment Portfolios: Evidence from A Sample of Italian Householders

Author

Listed:
  • Camilla Mazzoli

    (Department of Management, Università Politecnicadelle Marche, Ancona, Italy)

  • Nicoletta Marinellib

    (Department of Economics and Law, Università di Macerata, Macerata, Italy)

Abstract

According to the MiFID, financial intermediaries are requested to assess the suitability of the products they sell to retail clients. One of the main problems in the practical implementation of the MiFID suitability rule stems from omission or impreciseness of the questions specifically addressed to know the risk profile. Prompted by this evidence, the purpose of this paper is to shed light on the information an intermediary should collect in order to properly define a client’s risk profile. We analyze a sample of 1149 subjects interviewed in the 2008 Bank of Italy survey whose portfolios are risk-suitable; then, we relate the portfolio risk composition to some characteristics of the owner. By using the Heckit two-steps estimation procedure we set apart the variables that mainly explain the risk-holding decision (whether to acquire risky assets) and the risk-allocation decision (how much to invest in risky assets). We find that the former is essentially related to a set of ‘background’ variables correlated with the capability of understanding and emotionally bearing the risk, while the latter depends on ‘foregone’ variables mainly related to the economic and financial capacity of each individual.

Suggested Citation

  • Camilla Mazzoli & Nicoletta Marinellib, 2014. "Determinants of Risk-Suitable Investment Portfolios: Evidence from A Sample of Italian Householders," Journal of Economic and Financial Studies (JEFS), LAR Center Press, vol. 2(1), pages 50-63, February.
    • Handle: RePEc:lrc:lareco:v:2:y:2014:i:1:p:50-63
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    Cited by:

    1. Caterina Cruciani & Gloria Gardenal & Giuseppe Amitrano, 2022. "Risk Tolerance Tools: From Academia to Regulation and Back," Springer Books, in: Understanding Financial Risk Tolerance, chapter 0, pages 39-78, Springer.
    2. Bellofatto, Anthony & Broihanne, Marie-Hélène & D'Hondt, Catherine, 2019. "Appetite for information and trading behavior," LIDAM Discussion Papers LFIN 2019002, Université catholique de Louvain, Louvain Finance (LFIN).

    More about this item

    Keywords

    MiFID; Investment portfolios; Retail banking; Risk profile; Suitability.;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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