Changes in Financial Risk Tolerance, 1983-2001

20 Pages Posted: 10 May 2005

See all articles by Rui Yao

Rui Yao

University of Missouri

Sherman D. Hanna

Ohio State University (OSU)

Suzanne Lindamood

Independent

Abstract

Using six Survey of Consumer Finances cross-sectional datasets representing the years 1983-2001, this study investigates changes in financial risk tolerance levels over time. Logit analyses are performed to test changes in risk tolerance, controlling for respondent and household characteristics. Willingness to take some risk fell from 1983 to 1989, did not change from 1989 to 1992, increased in 1995, increased again in 1998, then decreased in 2001. Financial risk tolerance tends to increase when stock returns increase and decrease when stock returns decrease. This relationship could lead to buying when prices are high and selling when prices are low. Financial education is needed to help investors overcome the bias of overweighting recent events.

Keywords: Individual investing, economic trends, risk tolerance, stock ownership, Survey of Consumer Finances

JEL Classification: D14, G11

Suggested Citation

Yao, Rui and Hanna, Sherman D. and Lindamood, Suzanne, Changes in Financial Risk Tolerance, 1983-2001. Financial Services Review, Vol. 13, No. 4, pp. 249-266, 2004. Available at SSRN: https://ssrn.com/abstract=721081

Rui Yao (Contact Author)

University of Missouri ( email )

239B Stanley Hall
Columbia, MO 65211
United States

Sherman D. Hanna

Ohio State University (OSU) ( email )

1787 Neil Avenue
Campbell 265D
Columbus, OH 43210
United States
614-292-4584 (Phone)

Suzanne Lindamood

Independent ( email )

No Address Available

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