Determinants of Financial Risk Tolerance: An Analysis of Psychological Factors

Mahfuzur Rahman, Mohamed Albaity, Tarannum Azim Baigh and Md. Abdul Kaium Masud
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Mohamed Albaity: Department of Finance and Economics, College of Business Administration, University of Sharjah, Sharjah 27272, United Arab Emirates
Tarannum Azim Baigh: Department of Economics and Administration, Faculty of Business and Economics, University of Malaya, Kuala Lumpur 50603, Malaysia
Md. Abdul Kaium Masud: Department of Business Administration, Noakhali Science and Technology University, Noakhali 3814, Bangladesh

JRFM, 2023, vol. 16, issue 2, 1-12

Abstract: Financial risk tolerance is a complex process that goes beyond the exclusive use of demographic characteristics. Despite the necessity of developing a comprehensive financial risk tolerance measurement model, the psychological factors that might be important have been long overlooked. The purpose of this paper is to investigate the influence of psychological factors on financial risk tolerance level. The sample ( n = 1204) comprises university students from different parts of Malaysia. Significant financial risk tolerance differences are found as a function of gender and race. Students with high financial risk tolerance (FRT) are found to be positively correlated with the propensity for regret, the propensity for trust, the propensity to attribute success to luck, the propensity for overconfidence, and the propensity for social interaction, but not with happiness in life. These findings highlight the importance of individual propensities in assessing the financial risk tolerance level of a person. This study will act as an aid to financial advisors in understanding the behavior and attitudes of their clients.

Keywords: financial risk tolerance; psychological factors; race; behavioral finance; religiosity (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2023
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