What drives investors' risk appetite - Empirical evidence from private Finnish investors 2007-2008

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School of Economics | Master's thesis
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PURPOSE OF THE STUDY The objective of this Thesis is to study the risk attitudes of private investors from two aspects. Firstly I asses, how traditional determinants of risk, such as age or gender, affect individuals' risk appetite. Secondly, I address the effect of risk attitude on actual investments made by the investors. The effect of different variables on risk attitude is studied by conducting variable-by-variable data analysis, which is extended with ordered logistic and ordinary-least squares regressions. This study adds to the numerous of existing studies on risk attitudes by providing a large scale sample, which includes demographic data about the investors and also verified information about their financials, which enable me to study the link between actual investments made and risk attitude in more detail than in preceding studies. DATA The data of the study is gathered from OP-Pohjola Group's Investment Advisory Tool, software aimed at determining customers' attitude towards risk and suggesting investments according to the results of the questionnaire. The data set covers a time period from March 2007 to December 2008. In total, the data includes 85,063 private Finnish investors' attitude towards risk as well as their actual portfolio composition. Additionally the data is enriched with age, gender, wealth, income and debt parameters. All data is masked in such a way that no investor can be identified from the dataset. RESULTS I found that in general Finnish investors are very risk averse, but their risk allocation and risk attitude go hand in hand; the more investor has invested on equities, the more willing he is to take risk. Furthermore, in regression analysis, I found that experience, being male and having debt are linked with positive attitude towards risk, consistent with the previous literature. I also found that age is negatively and non-linearly related to risk attitude and that aging investors tend to be more risk averse, but actually their portfolios actually reflect their attitudes with a delay.
risk preferences, risk tolerance, age, gender, wealth, income, debt, investments
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