Financial risk tolerance, an investor’s appetite for financial risk, is an extremely
important aspect that needs to be considered when constructing investment portfolios.
Evidence as to how risk tolerance should be measured is mixed, with each method
having its own strengths and weaknesses. It can be determined both objectively and
subjectively, depending on the method used, and can be influenced by a variety of
demographic characteristics. Debate as to how certain demographic factors influence
risk tolerance is widespread, providing support for further study in this field,
particularly from a South African perspective.
The purpose of this study was to investigate to what extent demographic factors
influenced an individual’s willingness to take on levels of financial risk. The study used
an existing, but adapted, subjective questionnaire to determine the risk tolerance levels
of a sample of respondents. Respondents were categorised at an aggregate level as
either being below or above average risk tolerant. A Binary Logistic model was used to
analyse the effect of the independent demographic variables on risk tolerance and it was
found that age and gender were significantly related to risk tolerance, whilst there was
mixed evidence as to the relationship between risk tolerance and race as well as income.
The findings from the study provide new evidence from a wider South African sample
and could be used by financial advisors to improve their understanding of risk tolerance
and its demographic determinants, as well as companies wishing to align their
employees’ risk profiles with the overall company risk profile, as examples. / Thesis (M.Com.)-University of KwaZulu-Natal, Pietermaritzburg, 2011.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:ukzn/oai:http://researchspace.ukzn.ac.za:10413/8218 |
| Date | January 2011 |
| Creators | Metherell, Craig. |
| Contributors | Strydom, Barry. |
| Source Sets | South African National ETD Portal |
| Language | en_ZA |
| Detected Language | English |
| Type | Thesis |
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