Does Your Personality Affect the Investment Risk You Take?

Abstract

Purpose: This paper considers personality, one not so extensively researched factor affecting investment decisions. It understands how personality traits affect an individual’s investment risk profile, and also how demographics affect this risk and personality. Methodology: For this purpose, a survey is conducted in Kolkata and Ranchi, with a total of 119 respondents. Investors’ personality is analyzed through Big Five Personality Trait Model. Risk Profile of investors is measured using Likert scale questions. Correlation, ANOVA or Chi Square tests are used to find relations between personality traits, risk taken and demographics. Findings: This study found positive correlations between Openness to Experience and Neuroticism with Investor Risk. It found significant relations between Gender and Risk Taken. Neuroticism & Gender, Extroversion & Employment, and Extroversion & Income were also found to be significantly related. Practical Implications: Understanding the financial personality helps in finding the reason behind an individual’s investment decision making, and how that individual is going to react to factors involved in investing. Originality/Value: Even though personality characteristics are important aspect, only recently have economists began analyzing their effect on financial decisions. This study will concentrates on this area, and explains how personality of the investor affects his/her risk perception.