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

Ali Osman Oztop; Ezgi Kuyu

doi:10.17261/Pressacademia.2020.1297

Research Article

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

Year 2020, Volume: 9 Issue: 3, 209 - 222, 30.09.2020

Ali Osman Oztop Ezgi Kuyu

https://doi.org/10.17261/Pressacademia.2020.1297

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

References

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Year 2020, Volume: 9 Issue: 3, 209 - 222, 30.09.2020

Ali Osman Oztop Ezgi Kuyu

https://doi.org/10.17261/Pressacademia.2020.1297

Abstract

References

Ackert, L. F., Church, B. K., & Deaves, R. (2003). Emotion and Financial Markets. Economic Review - Federal Reserve Bank of Atlanta, 88(2), 33–41. http://doi.org/10.1017/CBO9781107415324.004
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Awais, M., Laber, M. F., Rasheed, N., & Khursheed, A. (2016). Impact of Financial Literacy and Investment Experience on Risk Tolerance and Investment Decisions: Empirical Evidence from Pakistan. International Journal of Economics and Financial Issues, 6(1), 73–79.
Bashir, T., Azam, S. N., Butt, S. A. A., Javed, S. A., & Tanvir, S. A. (2013). Are Behavioral Biases Influenced By Demographic Characteristics & Personality Traits? Evidence From Pakistan. European Scientific Journal, 9(29), 277–293.
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Chavali, K., & Mohanraj, M. P. (2016). International Journal of Economics and Financial Issues Impact of Demographic Variables and Risk Tolerance on Investment Decisions: An Empirical Analysis. International Journal of Economics and Financial Issues, 6(1), 169–175.
Chen, C. K.&Hughes, J. (2004). Using Ordinal Regression Model to Analyze Student Satisfaction Questionnaires, Association for Institutional Research, Vol. 1, 2004, 1-13.
Cihangir, M., Şak, N., & Bilgin, Ş. (2016). Bireysel Yatırımcı Demografileri: Osmaniye İlinde Risk Getiri Tercihlerinin Multinominal Probit Modeliyle İncelenmesi. Muhasebe ve Finansman Dergisi, (70), 129–142. http://doi.org/10.25095/mufad.396684
Dalton, M. A., & Dalton, J. F. (2004). Personal Financial Planning: Theory and Practice. Kaplan Financial.
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Delis, M. D., Kammas, P., & Mylonidis, N. (2015). Trust , Happiness , and Households’ Financial Decisions.
Dohmen, T., Falk, A., Huffman, D., Sunde, U., Schupp, J., & Wagner, G. G. (2011). Individual Risk Attitudes: Measurement, Determinants, and Behavioral Consequences. Journal of the European Economic Association, 9(3), 522–550. http://doi.org/10.1111/j.1542-4774.2011.01015.x
Drichoutis, A. C., & Nayga, R. M. (2013). Eliciting risk and time preferences under induced mood states. Journal of Socio-Economics, 45, 18–27. http://doi.org/10.1016/j.socec.2013.04.008
Droms, W. G. (1987). Investment Asset Allocation for PFP Clients. Journal of Accountancy, 163(4), 114–118.
Embrey, L., & Fox, J. (1997). Gender differences in the investment decision-making process. Journal of Financial Counseling and Planning, 8(2), 33–40.
Faff, R., Hallahan, T., & McKenzie, M. (2009). Nonlinear linkages between financial risk tolerance and demographic characteristics. Applied Economics Letters, 16(13), 1329–1332. http://doi.org/10.1080/13504850701381123
Finke, M. S., & Huston, S. J. (2003). The Brighter Side of Financial Risk: Financial Risk Tolerance and Wealth. Journal of Family and Economic Issues, 24(3), 233–256. http://doi.org/10.1023/A:1025443204681
Finucane, M. L., Alhakami, A., Slovic, P., & Johnson, S. M. (2000). The affect heuristic in judgments of risks and benefits. Journal of Behavioral Decision Making, 13(1), 1–17. http://doi.org/10.1002/(SICI)1099-0771(200001/03)13:1<1::AID-BDM333>3.0.CO;2-S
Fisher, P. J., & Yao, R. (2017). Gender differences in financial risk tolerance. Journal of Economic Psychology, 61, 191–202. http://doi.org/10.1016/j.joep.2017.03.006
Fox, J. (2005). Logistic regression. Maximum-Likelihood Estimation and Generalized Models, York Summer Programme in Data Analysis.
Gibson, R., Michayluk, D., & Van de Venter, G. (2013). Financial risk tolerance: An analysis of unexplored factors. Financial Services Review, 22(1), 23–50.
Grable, J. E. (2000). Financial risk tolerance and additional factors that affect risk taking in everyday money matters. Journal of Business and Psychology, 14(4), 625–630. http://doi.org/10.1023/A:1022994314982
Grable, J. E., & Lytton, R. H. (1998). Investor Risk Tolerance: Testing the Efficacy of Demographics as Differentiating and Classifying Factors. Financial Counseling and Planning, 9(1), 61–73.
Grable, J. E., & Roszkowski, M. J. (2008). The influence of mood on the willingness to take financial risks. Journal of Risk Research, 11(7), 905–923. http://doi.org/10.1080/13669870802090390
Grable, J., & Joo, S. (2004). Environmental and biopsychosocial factors associated with financial risk tolerance. Journal of Financial Counseling and Planning, 15(1), 73–82.
Grable, J., & Lytton, R. (1999). Financial risk tolerance revisited: the development of a risk assessment instrument. Financial services review, 8(3), 163-181.
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Primary Language	English
Subjects	Finance, Business Administration
Journal Section	Articles
Authors	Ali Osman Oztop 0000-0002-7568-5927 Ezgi Kuyu This is me 0000-0001-7737-6389
Publication Date	September 30, 2020
Published in Issue	Year 2020 Volume: 9 Issue: 3

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APA	Oztop, A. O., & Kuyu, E. (2020). INFLUENCE OF SOCIO-DEMOGRAPHIC CHARACTERISTICS, FINANCIAL LITERACY AND MOOD ON FINANCIAL RISK TOLERANCE. Journal of Business Economics and Finance, 9(3), 209-222. https://doi.org/10.17261/Pressacademia.2020.1297

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