Association between investment risk tolerance and portfolio risk: The role of confidence level

Zheying Yao and Abed G. Rabbani

Journal of Behavioral and Experimental Finance, 2021, vol. 30, issue C

Abstract: Conventional theory holds that there is a positive relationship between investment risk tolerance and investment portfolio. However, people with varying levels of confidence levels would behave differently, with those having a higher level of confidence investing in more risky assets. This study analyzes the relationship between investment risk tolerance, confidence levels, and investment portfolio risk. This paper uses the level of confidence to measure the overestimation or underestimation of financial knowledge and contributes to the literature by demonstrating whether overconfidence or underconfidence of financial knowledge affects portfolio risk and whether it moderates the impact of investment risk tolerance on portfolio risk.

Keywords: Portfolio risk; Confidence level; Financial knowledge; Overconfidence; Underconfidence; Investment risk tolerance (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:30:y:2021:i:c:s2214635021000265

DOI: 10.1016/j.jbef.2021.100482

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