Influence of bull and bear market phase on financial risk tolerance of urban individual investors in an emerging economy
ISSN: 1940-5979
Article publication date: 2 March 2022
Issue publication date: 29 June 2023
Abstract
Purpose
This study aims to analyze how risk tolerance is influenced by bull and bear market phases, age and professional work experience (PWE) of investors in emerging economies. The authors also analyze how different market phases (bull and bear) influence risk tolerance of investors in emerging economies for different age groups and with varying PWE.
Design/methodology/approach
The study uses two quantitative methods, one-way ANOVA and hierarchical regression model (HLM) to analyze individual investors' financial risk tolerance (FRT) in India.
Findings
The authors find that age and PWE have positive relationship with FRT behavior. However, interactions of these variables with market phase variable indicate that risk tolerance has nonlinear increasing relationship with investor's age and PWE. The risk tolerance of older investors is consistently high in both bull and bear market conditions, while young investors display a nonlinear risk behavior in different market conditions.
Practical implications
The study suggests that financial planners should include a longitudinal risk profiling of investors based on age groups, PWE and the current market phase to better understand investors' FRT and also to prefer more context-specific advice to investors in emerging economies, which, consequently, result in increasing the retail investors' interest in otherwise sparsely participated equity market.
Originality/value
Interaction effect of bull and bear market phases on relationship between age and PWE and FRT has been scantly studied.
Keywords
Acknowledgements
The authors would like to express gratitude toward participants of the survey without them this research would not have been possible. The authors are also thankful to RBF reviewer and handling editor for insightful and developmental comments, which greatly improved clarity and contribution of this paper. Further, support of Prof Vinayak Ram Tripathi and Prof Nikunj Jain is gratefully acknowledged.
Citation
Arora, N. and Mishra, B.K. (2023), "Influence of bull and bear market phase on financial risk tolerance of urban individual investors in an emerging economy", Review of Behavioral Finance, Vol. 15 No. 4, pp. 570-591. https://doi.org/10.1108/RBF-05-2021-0087
Publisher
:Emerald Publishing Limited
Copyright © 2022, Emerald Publishing Limited