A longitudinal study of financial risk tolerance

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Journal Article
Journal of Economic Psychology, 2012, 33 (4), pp. 794 - 800
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Academics are divided as to whether financial risk tolerance is an enduring psychological trait and as a consequence is less likely to change over the life of an individual, or a variable psychological state which varies readily in response to internal and external influences. In this study we report the findings of a longitudinal study that investigates the annual change in financial risk tolerance scores of individuals over a 5. year period and the factors that influence such change. Our results indicate a relatively small annual change in individuals' financial risk tolerance. Although our regression model is ineffective in providing a clarification for a change in the financial risk tolerance scores of individual respondents, we find a slight decrease in financial risk tolerance associated with a decrease in household size and an increase in financial risk tolerance after terminating the services of a financial planner. From our results we propose that financial risk tolerance is a stable personality trait and is unlikely to change substantially over the life of an individual. © 2012 Elsevier B.V.
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