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Why are Older Investors Less Willing to Take Financial Risks?

45 Pages Posted: 24 Apr 2017 Last revised: 14 Oct 2017

Chris Brooks

University of Reading - ICMA Centre

Ivan Sangiorgi

ICMA Centre, Henley Business School, University of Reading

Carola Hillenbrand

University of Reading - Henley Business School

Kevin Money

University of Reading - Henley Business School

Date Written: October 2017

Abstract

We investigate the link between age and tolerance of financial risks in the context of attitude to risk questionnaires completed by clients when meeting their financial advisors. Using a unique database comprising the responses to over half a million such questionnaires, we show that risk tolerance declines at an increasing, albeit slow, rate with age. We investigate the explanatory power of the ability to bear losses, declining investment horizon and retirement effects, finding that these variables have considerably greater explanatory power for the cross-section of risk aversion than age, and that they are only able to partially mediate the link between age and risk tolerance. Overall, our results are indicative of a modest age effect in risk tolerance that cannot be attributed to changes in other observable characteristics that differ between younger and older investors.

Keywords: retail investors, risk tolerance, attitude to risk, effect of ageing, cognitive decline

JEL Classification: G11, G20, J14, C25

Suggested Citation

Brooks, Chris and Sangiorgi, Ivan and Hillenbrand, Carola and Money, Kevin, Why are Older Investors Less Willing to Take Financial Risks? (October 2017). Available at SSRN: https://ssrn.com/abstract=2957376 or http://dx.doi.org/10.2139/ssrn.2957376

Chris Brooks (Contact Author)

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom
+44 118 931 82 39 (Phone)
+44 118 931 47 41 (Fax)

Ivan Sangiorgi

ICMA Centre, Henley Business School, University of Reading ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Carola Hillenbrand

University of Reading - Henley Business School ( email )

Greenlands
Reading, Henley on Thames RG6 6AH
United Kingdom

Kevin Money

University of Reading - Henley Business School ( email )

Greenlands
Reading, Henley on Thames RG6 6AH
United Kingdom

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