Do sociodemographic factors have influence on risk tolerance level of stock market investors? An analysis from a developing country perspective

Abstract

PurposeThe study attempts to assess the relationship between sociodemographic factors and the risk tolerance level of stock market investors reflected by their trading behavior from the perspective of developing market economy.Design/methodology/approachThe study collected data from a survey on capital market investors in Bangladesh. Portfolio beta has been used as a dependent variable to measure the risk tolerance level where total 11 sociodemographic factors have been used as independent variables.FindingsAmong all study variables, three sociodemographic factors are found to be significant in differentiating the risk tolerance level of the stock market investors. The author finds that the risk tolerance level of stock market investors significantly varies according to marital status, family size and financial responsibility.Practical implicationsAs sociodemographic characteristics provide a basis in assessing the investor risk tolerance level in the context of developing market economies, the study suggests that stock market related policy and investment management planning process should be formulated by incorporating behavioral aspects of the retail investors.Originality/valueThis study has the potential to contribute to the behavioral finance literature by showing how and at what extent sociodemographic factors may influence the risk tolerance level of stock market investors in developing countries, where sociodemographic factors are considered to be more dominating than the normative portfolio selection procedure because of lacking in investors' financial literacy and due to the presence of a weak regulatory as well as institutional framework. Further, apart from identifying and comprehensively incorporating all possible sociodemographic factors, this study uses portfolio beta as a new objective measure for financial risk tolerance, which overcomes the problem of subjective and other risk tolerance measurement in the existing literature.