Influence of Demographic Factors on Risk Tolerance of Individual Investors- An Empirical Analysis

Abstract

Financial risk tolerance can be defined as the level of risk an investor is willing to undertake. Every individual has their own risk tolerance. Some individuals are risk-takers and some are risk-averse. Evidences are available which suggested the risk takers investors are risk tolerant and risk-averse investors are generally risk intolerant. Many factors influence risk tolerance like demographic factors, personality, perception, and attitude of the individual. There are number of studies which favor the positive association of demographic factors with the risk tolerance of individual investors. Wang has suggested that age and risk tolerance are associated while Grable has suggested that gender influences the risk tolerance of an individual. Financial analyst analyses the level of risk an investor can assume to determine the investment preferences of an individual. The present research paper explores the relationship between demographic factors and the risk tolerance of an individual. Data has been collected from 732 respondents. Chi square method was used to determine the association among demographic variable and risk tolerance. Present study shows that most of the demographic factors of individual investors are strongly associated with the financial risk tolerance. Further, risk appetite of investors is also determined and it is discovered that individuals are moderate risk takers.