an empirical investigation of the relation between risk
TRANSCRIPT
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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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