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Psychological Antecedents of Financial Risk Tolerance

Heena Thanki, Anushree Karani and Anil Kumar Goyal
The Journal of Wealth Management Fall 2020, jwm.2020.1.111; DOI: https://doi.org/10.3905/jwm.2020.1.111
Heena Thanki
is an assistant professor with Shri Jairambhai Patel Institute of Business Management and Computer Applications in Gujarat, India
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Anushree Karani
is a post-doctoral fellow at ICSSR, MHRD and an Assistant Professor at Shri Jairambhai Patel Institute of Business Management and Computer Applications in Gujarat, India
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Anil Kumar Goyal
is a professor with Rukmini Devi Institute of Advanced Studies in New Delhi, India
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Abstract

Research indicates that financial risk tolerance (FRT) is a subjective and complex phenomenon and may diverge from individual to individual based on their demographics, genetic makeup, socioeconomic profiles, personality types, and psychological constructs. Past researchers have mainly focused on relating the socioeconomic profile, demographics, and personality type of investors to FRT. This article uses a novel approach that relates other critical behavioral and psychological factors, such as financial anxiety, financial satisfaction, obsession with money, personality type, self-esteem, and sensation-seeking behavior, as equally important contributors for determining the FRT. Confirmatory factor analysis and structural equation modeling techniques were used to test the variables and hypotheses. The results show that financial satisfaction is negatively correlated with FRT, whereas financial anxiety, obsession with money, personality type, self-esteem, and sensation-seeking behavior are positively correlated with FRT. All these variables act as antecedents of FRT.

TOPICS: Wealth management, behavioral financial in wealth management

Key Findings

  • • Personality Type A, self-esteem, and sensation-seeking behavior are positively correlated with financial risk tolerance.

  • • Financial satisfaction negatively influences financial risk tolerance.

  • • Obsession with money negatively influences financial satisfaction whereas financial satisfaction negatively influences financial anxiety.

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The Journal of Wealth Management: 23 (4)
The Journal of Wealth Management
Vol. 23, Issue 4
Spring 2021
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Psychological Antecedents of Financial Risk Tolerance
Heena Thanki, Anushree Karani, Anil Kumar Goyal
The Journal of Wealth Management May 2020, jwm.2020.1.111; DOI: 10.3905/jwm.2020.1.111

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Psychological Antecedents of Financial Risk Tolerance
Heena Thanki, Anushree Karani, Anil Kumar Goyal
The Journal of Wealth Management May 2020, jwm.2020.1.111; DOI: 10.3905/jwm.2020.1.111
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