Does investment risk tolerance predict emotional and behavioural reactions to market turmoil?
by James E. Corter
International Journal of Behavioural Accounting and Finance (IJBAF), Vol. 2, No. 3/4, 2011

Abstract: To assess if risk attitudes play a role in individual investors' reactions to adverse events in financial markets, members of a university community (N = 102) were administered a risk tolerance instrument. Additional survey items asked about financial, emotional and behavioural effects of the market downturn that began in Fall 2008. Attitudes towards risk and towards uncertainty, and investor experience, were positively correlated with riskiness of the individuals' self-reported investment portfolio. Causal modelling confirmed that investment risk tolerance predicts actual risk in the investor's portfolio; which predicted losses in portfolio value during the recent market disruptions. Portfolio losses correlated with negative emotional reactions, which together with risk tolerance predicted self-reported changes in investment strategy. In sum, investors' emotional reactions to losses may be mitigated by higher levels of risk tolerance, yet higher levels of risk tolerance are associated with riskier portfolios, and thus to larger losses in a market downturn.

Online publication date: Fri, 20-Jan-2012

The full text of this article is only available to individual subscribers or to users at subscribing institutions.

 
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.

Pay per view:
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.

Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Behavioural Accounting and Finance (IJBAF):
Login with your Inderscience username and password:

Username:        Password:          Forgotten your password?

Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.

If you still need assistance, please email subs@inderscience.com