Exploring The Effect of Personality and Demographic Characteristics on the Risk-Taking Behavior of Investors

Subject Areas : Business Strategy

rasoul goshtasbi maharlooi ¹ , Mohammad Khodaei Valahzaqrd ² , Abdollahi Kiwani . Seyed Mohammad ³ , Ali Saeedi ⁴

1 - Faculty of Management, Azad University, North Tehran Branch
2 - Assistant Professor, School of Management, Islamic Azad University, North Tehran Branch
3 - Assistant Professor, School of Management, Islamic Azad University, North Tehran Branch
4 - Associate Professor, Faculty of Management, Islamic Azad University, North Tehran Branch

Received: 2022-09-12 Accepted : 2022-11-15 Published : 2022-12-01

Keywords: Risk-Taking Behavior, Risk Tolerance, Demographics Traits, Investment decisions,

Abstract :

Personality is one of the most important study structures in organizational behavior that can play an important role in predicting human behavior. To describe the differences in personality, emotional, and social behavior, researchers have proposed the theory of five personality factors, known as the Big Five. One of the decisions investors make is to allocate wealth to financial and non-financial assets. The importance of this decision is especially evident in financial assets due to their nature and the need for more knowledge and expertise in this field because the mistakes of investors in this regard can create many risks and challenges for them. The main purpose of this study is to explain the effect of personality traits and demographic features on the risk-taking behavior of investors in the Tehran Stock Exchange. The present research is applied research in terms of goals and descriptive-survey research from the method view. The statistical sample of this research includes 358 investors of the Tehran Stock Exchange during 2019 and 2020. Research data were collected based on Sivarjan's (2018) questionnaire. The results of data analysis using the structural equation modeling method indicate that personality traits including neuroticism, extraversion, openness, agreeableness, and conscientiousness have a positive and significant effect on risk-taking behavior. Still, demographic characteristics including gender, age, marital status, and education do not have a significant effect on risk-taking behavior.

References:

 Islami Bidgoli, Gholamreza. Hibati, Farshad and Fereydoun are the guides of     the river. (1386). Investment Analysis and Portfolio Management (Author: Riley and Brown). Economic Research Institute, Second Edition.

 Bineshian, Zahra and Farhad Dehdar. (1397). Present the Model of the relationship between financial intelligence behavioral trends and their impact on investors decisions based on the theory of planned behavior Investment Knowledge Quarterly, 7 (25): 203-222. 

Jamshidi, Nasser and Hassan Qalibaf Asl (1394). Studying the Effect of Investors’ Personality on their Business Behavior and Investment Performance: Evidences of Tehran Stock Exchange. Financial Research Quarterly, 20 (1), 75-90. ‌ DOI: 10.22059/jfr.2018.252796.1006612

Seifollahi, Razieh, Kordloui, Hamidreza and Nader Dashti (2015). A comparative survey on behavioral factors on financial assets investment . Investment Knowledge Research Quarterly, 4 (15), 33-52.

  Shirafkan, Ali. (1391). Personality Theories, Pouran Pajoohesh, Second Edition, 222-223, 558-561.

 Gorjizadeh, Davood and Mohammad Hamed Khan Mohammadi. (1396). Influence of Behavioral finance factors on the decisions of individual investors . Investment Knowledge Quarterly, 6 (24): 275-292..

Ajzen, I., & Fishbein, M. (1977). Attitude-behavior relations: A theoretical analysis and review of empirical research. Psychological bulletin, 84(5), 888. https://doi.org/10.1037/0033-2909.84.5.888

Bali, T. G., Demirtas, K. O., Levy, H., & Wolf, A. (2009). Bonds versus stocks: Investors’ age and risk taking. Journal of Monetary Economics, 56(6), 817-830.  https://doi.org/10.1037/0033-2909.84.5.888

Back, K. M., & Seaker, R. (2004). Project performance: implications of personality preferences and double loop learning. Journal of American Academy of business, 4(1/2), 292-297.

Brayman, S., Finke, M., Bessner, E., Grable, J. E., Griffin, P., & Clement, R. (2015). Current practices for risk profiling in Canada and review of global best practices. Study prepared for the Investor Advisory Panel of the Ontario Securities Commission.

Brooks, C., Sangiorgi, I., Hillenbrand, C., & Money, K. (2018). Why are older investors less willing to take financial risks?. International Review of Financial Analysis, 56, 52-72. http://dx.doi.org/10.1016/j.irfa.2017.12.008

Brown, J. R., Ivković, Z., Smith, P. A., & Weisbenner, S. (2008). Neighbors matter: Causal community effects and stock market participation. The Journal of Finance, 63(3), 1509-1531.

Byrne, K. (2005). How do consumers evaluate risk in financial products?. Journal of Financial Services Marketing, 10(1), 21-36. https://doi.org/10.1057/palgrave.fsm.4770171

Bollen, N. P., & Posavac, S. (2018). Gender, risk tolerance, and false consensus in asset allocation recommendations. Journal of banking & Finance, 87, 304-317. https://doi.org/10.1016/j.jbankfin.2017.10.016

Bucciol, A., & Zarri, L. (2017). Do personality traits influence investors’ portfolios?. Journal of Behavioral and Experimental Economics, 68, 1-12. https://doi.org/10.1016/j.socec.2017.03.001

 

Chang, C. H. (2008). THE IMPACT OF BEHAVIORAL PITFALLS ON INVESTORS'DECISIONS: THE DISPOSITION EFFECT IN THE TAIWANESE WARRANT MARKET. Social Behavior and Personality: an international journal, 36(5), 617-634.  https://doi.org/10.2224/sbp.2008.36.5.617

Chin, W. W. (1998). The partial least squares approach to structural equation modeling. Modern methods for business research, 295(2), 295-336.

Ch Chitra, K., & Sreedevi, V. R. (2011). Does personality traits influence the choice of investment?. IUP Journal of Behavioral Finance, 8(2), 47.

Cooper, T., & Faseruk, A. (2011). Strategic risk, risk perception and risk behaviour: meta-analysis. Journal of Financial Management & Analysis, 24(2). , https:// doi.org/10.1108/K-10-2016-0281

Corter, J. E., & Chen, Y. J. (2006). Do investment risk tolerance attitudes predict portfolio risk?. Journal of business and psychology, 20(3), 369-381. https://doi.org/10.1007/s10869-005-9010-5

Costa, P. T., & McCrae, R. R. (1980). Influence of extraversion and neuroticism on subjective well-being: happy and unhappy people. Journal of personality and social psychology, 38(4), 668.  https://doi.org/10.1037/0022-3514.64.4.646

Crysel, L. C., Crosier, B. S., & Webster, G. D. (2013). The Dark Triad and risk behavior. Personality and individual differences, 54(1), 35-40. https://doi.org/10.1016/j.paid.2012.07.029

Diacon, S. (2004). Investment risk perceptions: Do consumers and advisers agree?. International Journal of Bank Marketing. 22(31) 80-198. https://doi.org/10.1108/02652320410530304

Digman, J. M. (1990). Personality structure: Emergence of the five-factor model. Annual review of psychology, 41(1), 417-440.

Engelberg, J. E., & Parsons, C. A. (2011). The causal impact of media in financial markets. the Journal of Finance, 66(1), 67-97.

Fang, M., Li, H., & Wang, Q. (2021). Risk tolerance and household wealth--Evidence from Chinese households. Economic Modelling, 94, 885-895. https://doi.org/10.1016/j.econmod.2020.02.029

Fellner, G., & Maciejovsky, B. (2007). Risk attitude and market behavior: Evidence from experimental asset markets. Journal of Economic Psychology, 28(3), 338-350. https://doi.org/10.1016/j.joep.2007.01.006

Fernandes, J. L. B., Ignacio Pena, J., & Miranda Tabak, B. (2010). Behaviour finance and estimation risk in stochastic portfolio optimization. Applied financial economics, 20(9), 719-738.https://doi.org/10.1080/09603100903493211

Filbeck, G., Hatfield, P., & Horvath, P. (2005). Risk aversion and personality type. The Journal of Behavioral Finance, 6(4), 170-180. https://doi.org/10.1207/s15427579jpfm0604_1

Fornell, C., & Larcker, D. F. (1981). Evaluating structural equation models with unobservable variables and measurement error. Journal of marketing research, 18(1), 39-50. https://doi.org/10.1177/002224378101800104

Grable, J., & Lytton, R. H. (1999). Financial risk tolerance revisited: the development of a risk assessment instrument☆. Financial services review, 8(3), 163-181. https://doi.org/10.1016/S1057-0810(99)00041-4

Grable, J. E. (2000). Financial risk tolerance and additional factors that affect risk taking in everyday money matters. Journal of business and psychology, 14(4), 625-630. https://doi.org/10.1023/A:1022994314982

Greenwood, R., & Shleifer, A. (2014). Expectations of returns and expected returns. The Review of Financial Studies, 27(3), 714-746. https://doi.org/10.1093/rfs/hht082

Hunter, K., & Kemp, S. (2004). The personality of e-commerce investors. Journal of Economic Psychology, 25(4), 529-537. https://doi.org/10.1016/S0167-4870(03)00050-3

Heo, W., Grable, J. E., & Rabbani, A. G. (2018). A test of the relevant association between utility theory and subjective risk tolerance: Introducing the profit-to-willingness ratio. Journal of Behavioral and Experimental Finance, 19, 84-88.  https://doi.org/10.1016/j.jbef.2018.05.003

Kahneman, D., & Riepe, M. W. (1998). Aspects of investor psychology. Journal of portfolio management, 24(4), 52-+.

 

Keil, M., Wallace, L., Turk, D., Dixon-Randall, G., & Nulden, U. (2000). An investigation of risk perception and risk propensity on the decision to continue a software development project. Journal of Systems and Software, 53(2), 145-157. https://doi.org/10.1016/S0164-1212(00)00010-8

Keshavarz, S., Vaziri Sereshk, M., Abdolbaghi, A., & Arman, M. (2022). Trading strategies based on trading systems: Evidence from the performance of technical indicators. Journal of System Management, 8(1), 37-50. 10.30495/JSM.2022.1937933.1509

 

Khojasteh, G., Daei Karimzadeh, S., & Sharifi Ranani, H. (2019). Credit Risk Measurement of Trusted Customers Using Logistic Regression and Neural Networks. Journal of System Management, 5(3), 91-104. 20.1001.1.23222301.2019.5.3.6.1

Kourtidis, D., Šević, Ž., & Chatzoglou, P. (2011). Investors’ trading activity: A behavioural perspective and empirical results. The Journal of Socio-Economics, 40(5), 548-557. https://doi.org/10.1016/j.socec.2011.04.008

Kuhnen, C. M., & Chiao, J. Y. (2009). Genetic determinants of financial risk taking. PloS one, 4(2), e4362.  https://doi.org/10.1371/journal.pone.0004362

Kuhnen, C. M., & Knutson, B. (2005). The neural basis of financial risk taking. Neuron, 47(5), 763-770. https://doi.org/10.1016/j.neuron.2005.08.008

Linciano, N., & Soccorso, P. (2012). Assessing investors' risk tolerance through a questionnaire. http://ssrn.com/abstract=2126578.

Mayfield, C., Perdue, G. and Wooten, K. (2008), “Investment management and personality type”, Financial Services Review, 17 ( 3) 219-236.

McCrae, R. R., & John, O. P. (1992). An introduction to the five‐factor model and its applications. Journal of personality, 60(2), 175-215.

McCrae, R. R., & Costa Jr, P. T. (1996). of Personality Theories: Theoretical Contexts. The five-factor model of personality: Theoretical perspectives, 51, 145.

McCrae, R. R., & Costa, P. T. (2003). Personality in adulthood: A five-factor theory perspective. Guilford Press.

McCarthy, B. (2000). Researching the dynamics of risk-taking and social learning: An exploratory study of Irish entrepreneurs. Irish Marketing Review, 13(1), 46.

Pan, C. H., & Statman, M. (2012). Questionnaires of risk tolerance, regret, overconfidence, and other investor propensities. SCU Leavey School of Business Research Paper, (10-05). http://dx.doi.org/10.2139/ssrn.1549912

Pompian, M. M., & Longo, J. M. (2004). A new paradigm for practical application of behavioral finance: creating investment programs based on personality type and gender to produce better investment outcomes. The Journal of Wealth Management, 7(2), 9-15. https://doi.org/10.3905/jwm.2004.434561

Sadi, R., Asl, H. G., Rostami, M. R., Gholipour, A., & Gholipour, F. (2011). Behavioral finance: The explanation of investors’ personality and perceptual biases effects on financial decisions. International journal of economics and finance, 3(5), 234-241. doi:10.5539/ijef.v3n5p234

Salmani Danglani, S., Saeedi, P., Bahramzadeh, H. A., & Pourshahabi, F. (2019). Representing the Pattern of Relationship between Personality Traits and Investment Patterns in the Stock Market. Journal of System Management, 5(1), 79-114.

Schoemaker, P. J. (1993). Determinants of risk-taking: Behavioral and economic views. Journal of Risk and Uncertainty, 6(1), 49-73. https://doi.org/10.1007/BF01065350

Shiller, R. J. (1999). Human behavior and the efficiency of the financial system. Handbook of macroeconomics, 1, 1305-1340. https://doi.org/10.1016/S1574-0048(99)10033-8

Sitkin, S. B., & Weingart, L. R. (1995). Determinants of risky decision-making behavior: A test of the mediating role of risk perceptions and propensity. Academy of management Journal, 38(6), 1573-1592.

Sivarajan, S., & De Bruijn, O. (2021). Risk Tolerance, Return Expectations, and Other Factors Impacting Investment Decisions. The Journal of Wealth Management, 23(4), 10-30. DOI: https://doi.org/10.3905/jwm.2020.1.124

Soane, E., Dewberry, C., & Narendran, S. (2010). The role of perceived costs and perceived benefits in the relationship between personality and risk‐related choices. Journal of risk research, 13(3), 303-318https://doi.org/10.1080/13669870902987024

Tversky, A., & Kahneman, D. (1974). Judgment under Uncertainty: Heuristics and Biases: Biases in judgments reveal some heuristics of thinking under uncertainty. science, 185(4157), 1124-1131. https://doi.org/10.1016/B978-0-12-214850-7.50008-5

Vigil-Colet, A. (2007). Impulsivity and decision making in the balloon analogue risk-taking task. Personality and Individual Differences, 43(1), 37-45. https://doi.org/10.1016/j.paid.2006.11.005

Vissing-Jorgensen, A. (2003). Perspectives on behavioral finance: Does" irrationality" disappear with wealth? Evidence from expectations and actions. NBER macroeconomics annual, 18, 139-194.

Vlaev, I., Chater 1, N., & Stewart, N. (2009). Dimensionality of risk perception: Factors affecting consumer understanding and evaluation of financial risk. The journal of behavioral Finance, 10(3), 158-181. DOI: 10.1080/15427560903167720

Wang, A. (2011). Younger Generations’ Investing Behaviors in MutualFunds: Does Gender Matter?. The journal of wealth management, 13(4), 13-23. DOI: https://doi.org/10.3905/jwm.2011.13.4.013

Weber, E. U., & Milliman, R. A. (1997). Perceived risk attitudes: Relating risk perception to risky choice. Management science, 43(2), 123-144.

Weller, J. A., & Thulin, E. W. (2012). Do honest people take fewer risks? Personality correlates of risk-taking to achieve gains and avoid losses in HEXACO space. Personality and individual differences, 53(7), 923-926..

Young, S., Gudjonsson, G. H., Carter, P., Terry, R., & Morris, R. (2012). Simulation of risk-taking and it relationship with personality. Personality and Individual Differences, 53(3), 294-299. https://doi.org/10.1016/j.paid.2012.03.014