Retirement Investor Risk Tolerance in Tranquil and Crisis Periods: Experimental Survey Evidence

59 Pages Posted: 25 Aug 2010 Last revised: 12 Apr 2011

See all articles by Hazel Bateman

Hazel Bateman

UNSW Sydney, CEPAR

Jordan J. Louviere

University of South Australia - Institute for Choice

Stephen E. Satchell

University of Cambridge - Faculty of Economics and Politics

Towhidul Islam

University of Guelph - Department of Marketing and Consumer Studies

Susan Thorp

University of Sydney Business School; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR)

Date Written: August 25, 2010

Abstract

We conduct a choice experiment to investigate the impact of the financial crisis of 2008 on retirement saver investment choice and risk aversion. Analysis of estimated individual risk parameters shows a small increase in mean risk aversion between the relatively tranquil period of early 2007 and the crisis conditions of late 2008. Investment preferences of survey respondents, estimated using the scale-adjusted version of a latent class choice model, also change during the crisis. We identify age and income as important determinants of preference classes in both surveys and age is also identified as a key determinant of variability (scale). Young and low income individuals make choices that are more consistent with standard mean-variance analysis but older and higher income individuals react positively to both higher returns and increasing risk in returns. Overall we find a mild moderating of retirement investor risk tolerance in 2008.

Keywords: risk preferences, investment decisions, financial crisis

JEL Classification: G11, G23, J26

Suggested Citation

Bateman, Hazel and Louviere, Jordan J. and Satchell, Stephen E. and Islam, Towhidul and Thorp, Susan, Retirement Investor Risk Tolerance in Tranquil and Crisis Periods: Experimental Survey Evidence (August 25, 2010). UNSW Australian School of Business Research Paper No. 2010ACTL10. Available at SSRN: https://ssrn.com/abstract=1665948 or http://dx.doi.org/10.2139/ssrn.1665948

Hazel Bateman

UNSW Sydney, CEPAR ( email )

High Street
Sydney, NSW 2052
Australia

Jordan J. Louviere

University of South Australia - Institute for Choice ( email )

Level 13
140 Arthur Street
North Sydney, New South Wales 2060
Australia

Stephen E. Satchell

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom
44 (0)1223 335213 (Phone)
44 (0)1223 335475 (Fax)

HOME PAGE: http://www.econ.cam.ac.uk/faculty/satchell/index.h

Towhidul Islam

University of Guelph - Department of Marketing and Consumer Studies ( email )

50 Stone Road West
Guelph, Ontario
Canada

Susan Thorp (Contact Author)

University of Sydney Business School ( email )

P.O. Box H58
Sydney, NSW 2006
Australia
+61 2 9351 6354 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

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