INFLUENCE OF SOCIO-DEMOGRAPHIC CHARACTERISTICS, FINANCIAL LITERACY AND MOOD ON FINANCIAL RISK TOLERANCE

Abstract

The Purpose- Risk is an inherent element of any kind of financial investment instruments. The aim of this study is to determine the factors affecting financial risk tolerance of the individuals. Additionally, this study analyses the role of mood in the financial risk tolerance. Data and Methodology- Data were collected using a survey questionnaire. 588 questionnaires were completed and used for analysis. This study employs an ordered logit model (OLM) to validate and assess proposed research model. Results- According to the results of the study, there is a statistically positive and significant relationship between both positive emotional state and age and financial risk tolerance. On the other hand, there is no significant relationship between gender, income, having children, financial literacy and financial risk tolerance. The results of this study indicate that the moment of decision making is important because of risk tolerance of individuals is affected by positive emotional state as well as age. Conclusion– This study shows that both financial knowledge and positive mood are strong determinants of financial risk tolerance. Surprisingly, there is no relation between gender, income level, having children, financial literacy level and the dependent variable financial risk tolerance level. Financial risk tolerance which shapes financial decision making process is influenced by the individual's biopsychosocial and environmental factors rather than rational choice theory.

Keywords

• Financial literacy
• behavioral finance
• mood
• financial risk tolerance
• ordered logit model

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