Behavioral Investor Types- Determinants of Individual Investors’ Financial Risk Tolerance

Abstract

Financial risk tolerance has long been the focus of investors and researchers. Over time, various methods have been developed to measure risk tolerance and researchers try to find out the determinants of risk tolerance. The objective of this study is to identify the impact of socioeconomic as well as demographic variables on investors' risk-taking behavior and to classify investors into behavioral investor types. Therefore, a questionnaire that measures risk tolerance in two ways is conducted. Risk tolerance is measured with the active or passive characteristic traits quiz and a classical risk-tolerance questionnaire. Firstly, the results of the Multiple linear regression show that the variables gender and education are factors that significantly determine risk tolerance. Secondly, the behavioral investor types analysis shows that investors are not very emotional in their investment behavior and have predominantly cognitive biases.