Individual Financial Risk Tolerance and the Global Financial Crisis

35 Pages Posted: 25 Jan 2012 Last revised: 10 Jul 2013

See all articles by Paul Gerrans

Paul Gerrans

The University of Western Australia - UWA Business School

Robert W. Faff

Bond University; University of Queensland

Neil Hartnett

University of Newcastle

Multiple version iconThere are 2 versions of this paper

Date Written: July 10, 2013


We investigate the temporal variation of individual investors’ tolerance towards financial risk by focusing on changes in tolerance associated with the global financial crisis of 2007-2009. Financial risk tolerance is measured from a psychometric scale administered to individual investors and analysed cross-sectionally and longitudinally after controlling for demographic, socio-economic and regional variations. In absolute terms the change in financial risk tolerance is small and contrasts with a popular view that risk tolerance is an elastic psychological state overly influenced by the pervading market conditions. The results suggest that even in the presence of significantly negative financial events, financial risk tolerance tends to be a reasonably stable attribute that is not subject to great fluctuation in the shorter term but possibly influenced and reshaped by events more gradually over time.

Keywords: financial risk tolerance, global financial crisis, investment choice, risk aversion, FinaMetrica

JEL Classification: D14, G11

Suggested Citation

Gerrans, Paul and Faff, Robert W. and Hartnett, Neil, Individual Financial Risk Tolerance and the Global Financial Crisis (July 10, 2013). 25th Australasian Finance and Banking Conference 2012, Available at SSRN: or

Paul Gerrans (Contact Author)

The University of Western Australia - UWA Business School ( email )

Crawley, Western Australia 6009
61 8 64882910 (Phone)

Robert W. Faff

Bond University ( email )

Gold Coast, QLD 4229

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072

Neil Hartnett

University of Newcastle ( email )

University Drive
Department of Accounting & Finance
Callaghan 2308, New South Wales
+61 2 4921 5036 (Phone)
+61 2 4921 6905 (Fax)

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