Risk Taking Behavior of Investors of Pakistan

Aoun Rizvi and Syed Ali ()

MPRA Paper from University Library of Munich, Germany

Abstract: Consistent with models of risk return, we indicate that risk-taking behavior in the context of investment is affected by the risk of self-attitudes, and perceptions of risk and return expectations. Analysis of the determinants of financial risk with the behavior is also important for practitioners. This applies in particular because of the implementation of the markets of financial instruments directive. One implication of our study is that objective measures of risk, such as historical volatility and return, are not able to determine the risk-taking behavior almost as well as subjective measures, the risk perceptions and self-return, especially the historical returns seems to be a poor indicator of risk-taking behavior. Moreover, we find substantial differences between the self-perceptions of risk is inferred from the interval estimates and inferred from those of the Likert scales. Our results also indicate that, in line with theoretical models, behavioral biases such as overconfidence and excessive optimism significantly affect risk behavior. Those investment advisers can try to incorporate some of these results in the consultative processes to correct the erroneous beliefs of investors. This can be achieved through the strengthening of the patch from the financial literacy of clients as well as showing them that their investment is required is probably more serious than originally envisaged by them. We also find evidence of the expanding scope of content in the privacy of our data. Determinants of risk-taking behavior differ not only between the two areas of content and very clear, but even in the field of investments.

Keywords: Financial Markets; Investors Risk-Aversion; Risk Behavior (search for similar items in EconPapers)
JEL-codes: G1 G11 G12 (search for similar items in EconPapers)
Date: 2011-05
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