Retirement investor risk tolerance in tranquil and crisis periods: Experimental survey evidence

Publication Type:
Journal Article
Journal of Behavioral Finance, 2011, 12 (4), pp. 201 - 218
Issue Date:
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We conduct a choice experiment to investigate the impact of the financial crisis of 2008 on retirement saver investment choice and risk aversion. Analysis of estimated individual risk parameters shows a small increase in mean risk aversion between the relatively tranquil period of early 2007 and the crisis conditions of late 2008. Investment preferences of survey respondents, estimated using the scale-adjusted version of a latent class choice model, also change during the crisis. We identify age and income as important determinants of preference classes in both surveys and age is also identified as a key determinant of variability (scale). Young and low income individuals make choices that are more consistent with standard mean- variance analysis, but older and higher income individuals react positively to both higher returns and increasing risk in returns. Overall we find a mild moderating of retirement investor risk tolerance in 2008. © The Institute of Behavioral Finance.
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