AN EMPIRICAL INVESTIGATION OF THE RELATION BETWEEN RISK TOLERANCE AND SOCIOECONOMIC

CHARACTERISTICS OF INDIVIDUAL INVESTORS
Prepared by: JAYESH SOLANKI From: QUEST MAGAZINE Vol. 1 , Issue 1, AUGUST,2011

ABSTRACT

The Research concludes that investor¶s socioeconomic characteristics such as Marital status, Earnings, Occupation and No. of Dependents on Risk tolerance. But Educational level, Regularity of investment decision are independent of risk tolerance level of the Indian individuals investor.

(3) To identify the socioeconomic factors on which risk tolerance level of the investor is dependent. (2) To investigate relationship between the socioeconomic factor (Marital status. Medium and High risk tolerance level.OBJECTIVES OF THE STUDY (1) To know the risk tolerance level of the individual investor and classify them into Low. Earning. . Educational level. Occupation. Number of dependents) of the investors and risk tolerance level.

The second method is to use a Questionnaire. The first method is a clear understanding of the investors and his\her history with investment securities. . Sample size is 150 investors.METHODOLOGY There are two common methods of estimating investors¶ tolerance for risk.

5 % level of significance is considered while testing the hypothesis.CONTINUES«« Based on the responses to the questionnaire. level To study the relationship between risk tolerance level and socioeconomic factors(marital status. For measuring the risk tolerance cumulative scale has been used. Education.) Chi-square test was applied. . Earning etc.

RESULTS AND DISCUSSION .

00% 0.3% 46.919 Occupation Accounting & Finance Professional Self employed 32 14 15 08 22 08 25 22 04 65 58 27 43.7% 18.00% 0.00% 43.7% 0.023 Education Under-graduate Graduate Post Graduate & above 04 31 26 05 13 20 06 21 24 15 65 70 10.00% 80.RISK TOLERANCE LEVEL Marital status Unmarried Married LOW MEDIUM HIGH TOTAL PRECENTA GE P-VALUE 06 55 05 31 19 42 30 120 20.3% 38.014 .

00% 30.yourself 1 to 3 persons besides yourself 4 to 5 persons besides yourself More than 5 persons besides yourself Risk tolerance level Percentage LOW MEDIU HIGH M TOTAL PRECENTA P-VALUE GE 01 16 44 00 20 18 02 09 40 03 45 102 02.0196 61 40.50.RISK TOLERANCE LEVEL Earning/annual < 1.020 04 27 26 04 04 16 08 10 10 26 15 00 18 69 49 14 12.7% 09.000 to 2.50.of Dependents Only.3% 51 34% 150 100% .00% 0.00% 46.7% 38 25.000 1.50.3% 0.50.00% 68.000 No.00% 32.00 > 2.

(2) 38 investors (25. From the previous table.3%) have moderate risk tolerance.7%) have low risk tolerance. . (1) It has been found that 61 investors (40. We can say that. (3) 51 investors (34%) have high risk tolerance. From the Sample of 150 individual investors.

HYPOTHESIS H01 : investor¶s marital status does not play significant role in determining investor risk tolerance. Hence H01 is Rejected. . It¶s interesting to know that 55 (36. The marital status of 80% of the investors was found to be married and the rest 20% are unmarried.7%) married investors are low risk tolerant as compared to high risk tolerance were only 42 (28%).

the education perspective. . 65(43.7%) of the individual investors covered in the study are Postgraduate. H02 : investor¶s education and risk tolerance level are independent.3%) investors are Graduates 15 (10%) of the investors under-Graduates. To conclude the H02 investor's education and risk tolerance are independent. From. 70(46.

From 65 (43. occupations perspectives. .7%) of the investors are related with software engineers. 27 (18%) is related with non-accounting or nonfinancial occupations. broking and financial management 58 (38. accountancy. banking. medical practitioner. teachers etc. investment. H03 : There is no significant difference between the risk tolerance of investor in different occupations.3%) of the investors are related with finance.

That¶s way Ho3 is tested. H03 is accepted . Find that it is related It is significant to the risk tolerance level.

The survey finds that 102 (68%) of individual investors whose earning above Rs.50.000p. H04 is not accepted. The p-value was found to be 0. 2.020057. .a. Hence. H04 : Investor¶s earnings do not play significant role in determining investor risk tolerance. To concluded that investor¶s earning do play significant role in determining investor risk tolerance.

only 12% of the investors do not have dependents 64% of the individual investors are responsible for one to three persons beside self. . H05 is not accepted and conclude that Number of dependents investor has and the risk tolerance level are dependent. In the survey finds that. H05 : Number dependents investor is responsible and the risk tolerance level is independent.

.FINDINGS (1) Indian individual investors are either low risk tolerant or high risk tolerant but not moderate risk tolerant. (2) Investor¶s risk tolerance level is dependent on the marital status. (3) Investor¶s education does not play significant role in determining investors risk tolerance level.

(6) Number of dependents investor has and the risk tolerance level is dependent. (5) Individual investor·s earnings do play a significant role in determining investor risk tolerance.. .CONTINUED««. (4) investor·s occupation play significant role in determining investors risk tolerance.

. The empirical study concludes that Indian investors are conservative investors since 41% of the investors are low risk tolerant or aggressive investors since 34% are high risk tolerant.SUMMARY AND CONCLUSION The aim of this paper is to investigate the relationship between socioeconomic factors and financial risk tolerance of individual investors. The empirical analysis has important implications for investment managers as it has come out with certain interesting facets of individual investors.

which can cater to the investors with varying risk tolerance level among the Indian individual Investors. The investors product designers can design products.CONTINUED««. ..

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