What Factors Influence the Financial Risk Tolerance - A Further Examination on the Nexus Between Financial Risk Tolerance and Financial Environmental Factors

Abstract

The consideration of risk tolerance plays a crucial role in the process of making optimal portfolio selections. In particular, the level of financial risk that an investor is willing to take, known as their financial risk tolerance (FRT), is sometimes regarded as the single most essential characteristic for the prediction of investor behaviour. In spite of this, it is a challenging endeavour since it is dependent on a wide variety of financial environment elements. For this reason, evaluating financial risk tolerance and identifying the elements that influence individual investors’ views of the financial risks they face have been interest of research and investigations for significant years. This study investigates the relationship between the financial risk tolerance of individual equity investors and financial environmental factors. For this purpose, four indicators namely “financial anxiety, money ethics, financial stress, and financial satisfaction” were used to check the impact of financial environmental determinants on FRT. The present study was executed in the state of Kerala, and the information was collected from individual retail investors through the use of a predesigned questionnaire. The Structural Equation Modelling (SEM) technique was utilised to evaluate the model. The results indicate that financial anxiety, money ethics, financial stress, and financial satisfaction exert significant positive effects on FRT. The findings of the current study may offer important assistance to state and national policymakers in the process of creating investment policies.

Keywords: Financial Risk Tolerance, Risk Attitude, Investment, Individual Investors, Financial Environmental Factors

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