Abstract
Attitude to risk questionnaires are widely used by financial advisors to recommend investments of appropriate risk levels to their clients. Yet the usefulness of this instrument to gauge how investors will react when faced with extreme volatility in the values of their assets remains untested. Using realistic scenarios and based on a large-scale survey in the UK, in this study we examine how the investing public reacts to actual portfolio losses. We find that conventional risk tolerance measures are inadequate for determining whether investors would 'sell out' or hold their portfolios in such circumstances. On the other hand, we find that past experience, emotions and personality characteristics, including measures of financial self-efficacy and extraversion, are significant predictors of investor reactions to market crashes.
| Original language | English |
|---|---|
| Article number | 102038 |
| Number of pages | 19 |
| Journal | International Review of Financial Analysis |
| Volume | 80 |
| Early online date | 17 Jan 2022 |
| DOIs | |
| Publication status | Published - 1 Mar 2022 |
Bibliographical note
Funding Information:We are grateful to Innovate UK and the ESRC for funding this research under Knowledge Transfer Partnership grant number 11748. We thank Distribution Technology for allowing us to use their attitude to risk questionnaire and we are grateful to an aonymous referee for very useful comments on a previous version of the paper.
Publisher Copyright:
© 2022 Elsevier Inc.
Keywords
- Retail investors
- Risk tolerance
- Personality characteristics
- Emotions
- Financial decisions