an empirical investigation of the relation between risk

8/2/2019 An Empirical Investigation of the Relation Between Risk

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AN EMPIRICAL

INVESTIGATION OF THE

RELATION BETWEEN

RISKTOLERANCE AND

SOCIOECONOMICCHARACTERISTICS OF

INDIVIDUAL INVESTORS

From: QUEST MAGAZINE

Vol. 1 , Issue 1, AUGUST,2011

Prepared by:

JAYESH SOLANKI


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ABSTRACT

The Research concludes that investors

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.


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OBJECTIVES OF THE STUDY

(1) To know the risk tolerance level of the individualinvestor and classify them into Low, Medium and Highrisk tolerance level.

(2) To investigate relationship between the socioeconomicfactor (Marital status, Educational level, Occupation,Earning, Number of dependents) of the investors and

risk tolerance level.

(3) To identify the socioeconomic factors on which risktolerance level of the investor is dependent.


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METHODOLOGY

There are two common methods of estimating investors

tolerance for risk.

The first method is a clear understanding of the investors

and his\her history with investment securities.

The second method is to use a Questionnaire.

Sample size is 150 investors.


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CONTINUES

Based on the responses to the questionnaire,

For measuring the risk tolerance level

cumulative scale has been used.

To study the relationship between risk tolerancelevel and socioeconomic factors(marital status,Education, Earning etc.) Chi-square test was

applied.

5 % level of significance is considered whiletesting the hypothesis.


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RESULTS AND

DISCUSSION


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RISK

TOLERANCE

LEVEL

LOW MEDIUM HIGH TOTAL PRECENTA

GE

P-VALUE

Marital status

0.023Unmarried 06 05 19 30 20.00%

Married 55 31 42 120 80.00%

Education

Under-graduate 04 05 06 15 10.00%

0.919Graduate 31 13 21 65 43.3%

Post Graduate &

above

26 20 24 70 46.7%

Occupation

Accounting &

Finance

32 08 25 65 43.3%

0.014Professional 14 22 22 58 38.7%

Self employed 15 08 04 27 18.00%


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RISK

TOLERANCE

LEVEL

LOW MEDIU

M

HIGH TOTAL PRECENTA

GE

P-VALUE

Earning/annual

0.020< 1,50,000 01 00 02 03 02.00%

1,50,000 to

2,50,00

16 20 09 45 30.00%

> 2,50,000 44 18 40 102 68.00%

No.ofDependents

Only- yourself 04 04 10 18 12.00%

0.0196

1 to 3 persons

besides yourself

27 16 26 69 46.00%

4 to 5 personsbesides yourself

26 08 15 49 32.7%

More than 5

persons besides

yourself

04 10 00 14 09.3%

Risk tolerance

level

61 38 51 150


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From the previous table, We can say that,

From the Sample of150 individual investors,

(1) It has been found that 61 investors (40.7%) have low risktolerance.

(2) 38 investors (25.3%) have moderate risk tolerance.

(3) 51 investors (34%) have high risk tolerance.


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HYPOTHESIS

H01 : investors marital status does not play

significant role in determining investor risk

tolerance.

The marital status of80% of the investors was found to

be married and the rest 20% are unmarried.

Its interesting to know that 55 (36.7%) married

investors are low risk tolerant as compared to high risk

tolerance were only 42 (28%).

Hence H01 is Rejected.


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H02 : investors education and risk tolerance level are

independent.

From, the education perspective,

70(46.7%) of the individual investors covered in thestudy are Postgraduate,

65(43.3%) investors are Graduates

15 (10%) of the investors under-Graduates.

To conclude the H02 investor's education and risk tolerance

are independent.


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H03 : There is no significant difference between

the risk tolerance of investor in different

occupations.

From occupations perspectives,

65 (43.3%) of the investors are related with

finance, accountancy, investment, banking,

broking and financial management

58 (38.7%) of the investors are related withsoftware engineers, medical practitioner, teachers

etc.

27 (18%) is related with non-accounting or non-

financial occupations.


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Thats way Ho3 is tested. Find that it is related

It is significant to the risk tolerance level.

H03 is accepted


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H04 : Investors earnings do not play significant role in

determining investor risk tolerance.

The survey finds that 102 (68%) of individual investors

whose earning above Rs. 2,50,000p.a.

The p-value was found to be 0.020057.

Hence, H04 is not accepted.

To concluded that investors earning do play significant

role in determining investor risk tolerance.


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H05 : Number dependents investor is responsible and

the risk tolerance level is independent.

In the survey finds that, only 12% of the investors do not

have dependents

64% of the individual investors are responsible for one tothree persons beside self,

H05 is not accepted and conclude that Number of

dependents investor has and the risk tolerance level are

dependent.


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FINDINGS

(1) Indian individual investors are either low risk

tolerant or high risk tolerant but not moderate

risk tolerant.

(2) Investors risk tolerance level is dependent on

the marital status.

(3) Investors education does not play significant

role in determining investors risk tolerance

level.


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CONTINUED..

(4) investors occupation play significant role in

determining investors risk tolerance.

(5) Individual investors earnings do play asignificant role in determining investor risk

tolerance.

(6) Number of dependents investor has and the risktolerance level is dependent.


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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 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.

The empirical analysis has important implications for

investment managers as it has come out with certain

interesting facets of individual investors.


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CONTINUED..

The investors product designers can design products,

which can cater to the investors with varying risk

tolerance level among the Indian individual Investors.


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an empirical investigation of the relation between risk

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