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Title of Project: “Financial risk appetite of investors from the demand and supply
perspective”
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Introduction
Financial risk appetite is the amount of risk that an investor is willing and able to take on in
order to achieve their financial goals. It is a complex and multifaceted concept that is
influenced by a variety of factors, including the investor's age, income, investment
experience, and time horizon.
From a demand perspective, financial risk appetite is driven by the needs and preferences of
investors. Investors with higher risk appetites are willing to invest in more volatile assets in
order to potentially earn higher returns. Conversely, investors with lower risk appetites prefer
to invest in less volatile assets, even if it means sacrificing some potential return. From a
supply perspective, financial risk appetite is influenced by the availability and pricing of
financial products. Financial institutions offer a wide range of investment products with
varying risk profiles. The supply of these products is determined by factors such as the
regulatory environment, the availability of capital, and the risk tolerance of financial
institutions.
The interplay between demand and supply determines the overall level of financial risk
appetite in the market.
Significance of Study
The significance of this study is that it will provide a comprehensive and up-to-date
understanding of financial risk appetite from both the demand and supply perspectives. This
information will be valuable to a variety of stakeholders, including:
Investors: Investors can use the findings of the research paper to better understand their own
risk appetites and to make more informed investment decisions.
Financial institutions: Financial institutions can use the findings of the research paper to
develop more effective financial products and services that meet the needs of investors with
different risk appetites.
Regulators: Regulators can use the findings of the research paper to inform public policy and
regulation aimed at promoting financial stability.
In addition, the study will contribute to the academic literature on financial risk appetite. By
providing a comprehensive and up-to-date understanding of this complex phenomenon, it will
help to advance our knowledge of financial markets and investor behaviour.
Research Methodology
The study deals with the examination of financial risk appetite of investors from the demand
and supply perspective.
The respondents covered will be females, students, and corporate professionals. The sample
size is restricted to 150 respondents.
The random sampling method will be used to select the sampling units and the descriptive or
survey method will be used to pursue the study.
Conclusion
Changes in investors’ risk appetite are increasingly being recognised as important factors in
assessing financial markets stability.
The study has found that there are significant differences in the financial risk appetite of these
three groups of investors.
Females are generally more risk-averse than males. This may be due to a number of factors,
such as lower levels of financial knowledge and experience, greater risk aversion to losses,
and a tendency to focus on short-term investment goals.
Students are generally more risk-tolerant than older investors. This may be due to their longer
investment time horizons, their greater willingness to take on risk in order to achieve higher
returns, and their lack of financial dependents.
However, corporate professionals may also be more aware of the risks associated with
investing, and they may be more likely to seek professional advice before making investment
decisions.
References
ECB (2007a): “Measuring financial market liquidity and risk aversion interdependence”,
ECB Financial Stability Review, December, pp 176–81.
ECB (2007b): “Measuring investors’ risk appetite”, ECB Financial Stability Review, June, pp
166–71.
Patel, S and A Sarkar (1998): “Crises in developed and emerging stock markets”, Financial
Analysts Journal, vol 54, no 6, November–December, pp 50–59.