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FINANCIAL RISK TOLERANCE:

A COMPARATIVE STUDY BETWEEN MALES AND FEMALES

- GROUP 12

Mehul Bardia (24)

Namasani Sushuma (28) 1


Narendra Kumar Kashyap (29) Venkata Ashok Kumar (44)

INTRODUCTION

FINANCIAL RISK

The potential that our action or inaction will lead to undesirable financial outcomes

FINANCIAL RISK TOLERANCE

Individuals willingness to accept the risk as a trade off to gain higher returns

It is the maximum amount an individual is willing to accept when making a financial decision. RISK TOLERANCE VIDEO
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LITERATURE REVIEW
Financial

Risk Tolerance (FRT) has attracted researches from

various disciplines such as:


Consumer Researchers (Grable and Joo 1999) Cognitive Psychologists (Holtgrave and Weber 1993)

Behavioral Economists (Roszkowski and Snelbecker 1990)


Financial Analysts and financial planners (Quattlebaum 1988).

oThe

definition of FRT in our paper is based on the definition

given by Cordell (2001), who defines risk tolerance as a


combination of four factors: risk propensity, risk attitude, risk
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capacity and risk knowledge (RiskPACK).


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RISKPACK

According to Cordell (2001)

Risk Propensity is defined as the current investment behavior of


the investor.

Risk Attitude is the willingness of the investors to take financial risk. Risk Attitude tries to measure the perception of risk and reward from the investors point of view.

Risk Capacity is the financial ability of a client to take risk. Risk Knowledge is the knowledge that an investor has relating

to the return and risk involved in different financial instruments


and the trade-off in each.
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OBJECTIVE OF STUDY

Gender often forms a a characteristic in making a judgment

about a clients risk tolerance (Grable & Lytton, 1998; 1999).

Although, there is literature in support of the fact that men are actually more financially risk tolerant (Olsen & Cox,2001; Roszkowski, Delaney, & Cordell, 2004), this does not mean that a financial advisor should be biased in making his judgment.

The objective of our study is therefore to make a comparison between males and females with respect to RiskPACK and to find out if there is a difference between males and females, and in which of the four factors.
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THEORETICAL MODEL

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METHODOLOGY

Survey based on questionnaire. (electronic mail)

21 item questionnaire: Risk Propensity (1-7), Risk Attitude (812,21), Risk Capacity (13-16), Risk Knowledge (17-20).

SAMPLE SIZE 51 (Male -28, Female -23) STATISTICAL TEST t statistic for two population SCALE (Q 1 Q20) : Likert Scale

1 = Strongly Disagree, 2 = Disagree, 3 = Neutral, 4 = Agree, 5 = Strongly Agree


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RESULTS
MODERATING VARIABLES AGE DETAILS

24 or younger: 40 24-34: 11

GENDER
INCOME GROUP

Males : 28 Females : 23
3 lacs or below: 47 3lacs 5lacs: 3 5lacs-7lacs: 1 Full Time: 50 Part Time: 1
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EMPLOYMENT STATUS

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HYPOTHESES TESTING

Set Null and Alternative Hypotheses

Determine the appropriate statistical test


Set the level of significance (=0.05 is taken) Set the decision rule (two tail test) Collect the sample data Analyze the data

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1. SET NULL AND ALTERNATIVE

HYPOTHESES
Hypotheses 1 (Risk Propensity): H0: There is no difference between males and females with respect to risk propensity H1: There is significant difference between males and females with respect to risk propensity. Hypotheses 2 (Risk Attitude): H0: There is no difference between males and females with respect to risk attitude H1: There is significant difference between males and females with respect to risk attitude. Hypotheses 3 (Risk Capacity): H0: There is no difference between males and females with respect to risk capacity. H1: There is significant difference between males and females with respect to risk capacity. Hypotheses 4 (Risk Knowledge): H0: There is no difference between males and females with respect to risk knowledge H1: There is significant difference between males and females with respect to risk knowledge.
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HYPOTHESES TESTING
2. Determine the Appropriate Statistical Test
In

this case we have considered hypothesis testing for the

difference between two population means using the t statistic. 3. Set the Level of Significance
In

this case we have taken the level of significance as 0.05

4. Set the Decision Rule

Value of =0.05. The critical values of t(0.025,50) from the t

distribution table is +2.009.

The hypothesis will be rejected if the observed value of t is less than -2.009 and greater than +2.009.
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HYPOTHESES TESTING
5. Collect the Sample Data

The sample data is collected through survey with sample size of Male(n1) =29, Female(n2) =23

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Step 6: Analyze the data

In this step, we compute the statistic test, which is t statistic in this case. (ANALYSIS)
FEMALE MEAN VARIANCE 13.8735178 4.33201581 MEAN 21.7857143 15.8928571 23.3478261 16.173913 MALE VARIANCE 4.76719577 4.32142857

FACTORS Risk Propensity Risk Attitude Risk Capacity Risk Knowledge

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7.36363636

12.3571429

6.60846561

12.5652174

6.98418972

12.1071429

3.21031746

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RISK PROPENSITY

The P-Value (0.068>0.05) indicates that the null hypotheses is accepted and therefore there is no difference between males and females with respect to Risk Propensity
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RISK ATTITUDE

The P-Value (0.633>0.05) indicates that the null hypotheses is accepted and therefore there is no difference between males and females with respect to Risk Attitude
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RISK CAPACITY

The P-Value (0.390>0.05) indicates that the null hypotheses is accepted and therefore there is no difference between males and females with respect to Risk Capacity
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RISK KNOWLEDGE

The P-Value (0.466>0.05) indicates that the null hypotheses is accepted and therefore there is no difference between males and females with respect to Risk Knowledge
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STATISTICAL INFERENCE
ANALYSIS

Risk Propensity
t value 1.87 P value 0.068 Null Hypothesis Accepted

Risk Attitude
t value 0.48 P value 0.633 Null Hypothesis Accepted

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STATISTICAL INFERENCE
Risk Capacity
t value 0.87 P value 0.390 Null Hypothesis Accepted

Risk Knowledge
t value 0.74 P value 0.466 Null Hypothesis Accepted

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GGG

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