Financial Risk Management
Effect of Demographics and Personality Traits on Risk Tolerance of Indian Investors

Article Details
Pub. Date : Mar, 2022
Product Name : The IUP Journal of Financial Risk Management
Product Type : Article
Product Code : IJFRM030322
Author Name : Deepali Malhotra*
Availability : YES
Subject/Domain : Finance Management
Download Format : PDF Format
No. of Pages : 21



This paper aims to test the influence of demographical factors and personality traits on the risk tolerance level of Indian investors. To fulfill the objective, a survey was conducted and multinomial logit model technique was applied to the data gathered from 620 respondents to test the effect of several factors on the risk tolerance level of Indian investors. The results exhibit that most Indian investors have a high preference for risk but are poles apart in terms of gender. Further, the findings reveal age as a significant factor, wherein young respondents are more risk-prone and have a greater risk tolerance level in contrast to their older counterparts. Regarding educational qualifications, it transpired that there is no significant relationship between respondents' educational qualifications and risk tolerance level. Moreover, individual investors become less risk-averse with increasing income. Lastly, the study concluded that some of the personality traits have a significant influence on respondents' risk-tolerance level.


Investing in equity markets is considered very risky by a majority of the Indian population due to the high level of uncertainty. Risk is amongst the essential elements of the investment decision-making procedure. Certain prior studies have expressed incredulity about the rationality of investors' decisions. They indicate that individual investors' risk tolerance level can strongly impact their investment decisions, such as investment choice, horizons, patterns, and volume (Fellner and Maciejovsky, 2007; Bali et al., 2009; Chattopadhyay and Dasgupta, 2015; and Pak and Mahmood, 2015). Investors willing to take higher risk prefer to invest in stocks, while those who have lower risk tolerance hold cash, fixed deposits, or bonds (Grable and Lytton, 1998). Keller and Siegrist (2006) examined the variables that affect the investors' decision-making and report that risk tolerance and earnings level significantly impact the inclination to participate in the stock market. There are three types of investors based on their risk tolerance level: risk-averse, risk-neutral, and risk-lovers. Prior literature has examined the impact of demographic factors, such as age, gender, race, religion, level of education, etc., on the investors' attitude towards risk. However, the results of prior studies are vastly diverse and uncertain. Broadly the authors have demonstrated a favorable influence of demographic factors on investors' risk tolerance level and investment style (Grable, 2000;