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What is Financial Risk Tolerance

Handbook of Research on Behavioral Finance and Investment Strategies: Decision Making in the Financial Industry
The level of financial uncertainty an individual is willing to undertake for the potential of obtaining higher financial returns.
Published in Chapter:
The Effects of Situational and Dispositional Factors on the Change in Financial Risk Tolerance
Jorge Ruiz-Menjivar (University of Georgia, USA), Wookjae Heo (University of Georgia, USA), and John E. Grable (University of Georgia, USA)
DOI: 10.4018/978-1-4666-7484-4.ch012
Utilizing the lens of Heider's (1958) attribution theory and Grable and Joo's (2004) conceptual framework, this chapter studies the effect of situational and dispositional attributions on changes in financial risk tolerance. Situational factors are assessed through changes in household situation and changes in macroeconomic factors. For dispositional factors, changes upon sensation seeking attitudes are explored. The data employed in this research come from the 1993, 1994, and 2006 National Longitudinal Survey of Youth (N = 5,449). Results from structural equation modeling indicate that changes in internal attributions have a significant and positive effect (coefficient = 0.12, p <0.01) on the change in risk tolerance, as is true for changes in external attributions where a significant effect is seen (coefficient = 0.30, p <0.01). Thus, the findings from this study support the conceptual framework premised on Heider's attribution theory and Grable and Joo's (2004) conceptual model.
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More Results
The Role of Big Data Research Methodologies in Describing Investor Risk Attitudes and Predicting Stock Market Performance: Deep Learning and Risk Tolerance
The maximized degree of a person’s willingness to invest in a financial market or a particular investment in which the outcome is both unknown and potentially negative.
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