Download this Paper Open PDF in Browser

Individual Financial Risk Tolerance and the Global Financial Crisis

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

Paul Gerrans

University of Western Australia - UWA Business School

Robert W. Faff

University of Queensland

Neil Hartnett

University of Newcastle

Multiple version iconThere are 2 versions of this paper

Date Written: July 10, 2013

Abstract

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: https://ssrn.com/abstract=1990811 or http://dx.doi.org/10.2139/ssrn.1990811

Paul Gerrans (Contact Author)

University of Western Australia - UWA Business School ( email )

Crawley, Western Australia 6009
Australia
61 8 64882910 (Phone)

Robert W. Faff

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Neil Hartnett

University of Newcastle ( email )

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

Paper statistics

Downloads
464
Rank
50,489
Abstract Views
1,912