The Effect of Demographic Characteristics and Personality Traits on Investors’ Financial Risk Tolerance. A Case Study of Investors in Mardan

Abstract

Financial risk tolerance is an individual's ability to tolerate and accept a particular level of risk linked with financial decisions. Demographic characteristics and personality traits are different characteristics that differentiate one person from another based on their financial risk tolerance. As a result, financial advisers and asset managers must assess a client's financial risk tolerance and recommend products based on that level. Hence, this study is designed to check whether the differences in demographics and personality traits influence investors' financial risk tolerance. The purpose of this study is to determine if demographic characteristics and personality traits influence individuals’ financial risk tolerance. For this study, 200 respondents were chosen using the convenience sampling method. The data were analyzed using SPSS In order to determine a relationship between dependent and independent variables. The data suggest that some demographic characteristics are associated with the financial risk threshold. Gender, Monthly Income, Age, and education level revealed significant connections, whereas married status and gender did not. Additionally, the study found a significant relationship between financial risk tolerance and personality factors such as extroversion, conscientiousness, agreeableness, and openness to experience. However, neuroticism does not show a significant relationship. These findings highlight the need to take into consideration individual differences when estimating risk tolerance and giving individualized investment advice. Asset managers and financial advisors can utilize this information to understand investors' risk preferences better and develop strategies that match their personal needs.