Personality Traits Leads to Investor’s Financial Risk Tolerance: A Structural Equation Modelling Approach

Abstract

In today’s scenario, investors’ preferences towards different investment avenues depend upon their risk tolerance level and return associated with investment plan. The tolerance level of investors for risk is influenced by many demographic and psychological factors. Personality traits (PTs) are one of the important factors that impact the tolerance levels of investors for risk. Thus, the existing study focuses on whether (a) the direct effect of Big Five PTs on financial risk tolerance (FRT) or (b) PTs as a second-order (higher-order) factor leads to FRT. Data are cross-sectional in nature, which were collected from 599 investors who invested through Angel Broking Co. (Securities co.) in Delhi and the National Capital Region (NCR) by using online structured questionnaire. To examine the strength of the relationship between variables’ correlation and regression tests were applied using the structural equation modelling approach. The study found that among Big Five personality dimensions, only agreeableness, conscientiousness and openness are significantly associated with FRT, whereas PTs as a second-order (higher-order) factor have a strong association with FRT of investors. Thus, the PT as a second order is the preferred model.

JEL Code: G02

Keywords

Personality traits Big Five structural equation modelling financial risk tolerance and second order (higher order)

Introduction

India is one of the developing countries of the world, which is growing at a fast pace. The capital market of any country plays an important role in the development of economy. Although the Indian capital market is still in the developing stage due to reduced participation of individual investors, The Indian capital market comprises both debt market and equity market, where majority of trades take place in the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). The major participants of the Indian stock market are domestic retail participants, non-resident Indians (NRIs) and overseas citizens of India (OCIs), domestic institutions, domestic asset management companies (AMC) and foreign institutional investors. By and large, there is an immense growth in the market because individual investors are now more aware about different investment avenues and actively participate in the market. The young investor who has just begun his career as a professional has, above all, the obligation to acquire, to know, to recognize and to change. A day before today, he was actually only breathing in a world, which had endangered him from failure, but, today, he has learnt to manage his errors and enter into the long process of disapprenticeship. Today, the world of investment has changed drastically; it has developed to be more flexible and more challenging in recent years, financial market innovators have developed a wide range of financial products, catering to wide and diversified needs of the retail investors, thus making it difficult for the investors to make a wise decision of investment. Moreover, it is also believed that behavioural biases also had an impact on investment decision-making. It has been debated over a longer period of time that whether capital markets work on normative model or descriptive model (Tauni et al., 2018) In the previous literature available for behavioural finance, a lot of focus was paid on the trading behaviour of retail investors, which was based upon amusing visions engrossed from the field of psychology, but the role of an investor’s own personality traits (PTs) has not been measured in detail (Van Witteloostuijn & Muehlfeld, 2008). The traditional theories of saving and investing assumed that investors behave rationally. The contribution of Nobel laureate Kahneman (2003) in economic theories took a different path. It became clear that the thinking process of an individual was affected by many personality factors that participate in the decision-making process. Personality factors are one of the important dimensions of behavioural finance to understand how people make decisions, both individually and collectively. Understanding the influence of PT on the financial risk tolerance (FRT) will help the investors in performing a post-analysis of each investment, so that they become aware of past behavioural mistakes and stop continuing the same. Pompian and Longo (2004) used Myers–Briggs type of indicator for measuring the personality of individual investors and found that there are different traits of personality, which lead to cognitive biases. They recommend that knowing the personality type of investors or having information about PTs of an investor will help financial advisors to build better portfolios and make more informed financial decisions. Brown and Taylor (2014) investigated the relationship between PTs and household finances, using ‘Big Five’ personality taxonomy, that is, openness to experience, agreeableness, extraversion, conscientiousness and neuroticism. Some of these PTs are significantly associated with the financial decisions made by households. Tauni et al. (2020) found that similarity in PTs of investors and advisors are positively related to investor stock trading performance. The essence of PTs lies in the explanation, clarification, description and understanding of the interior pointers that notify the decision-maker on the interface between his exterior and interior atmosphere during the process of choice. Investment decision is a decision of choice; of which risk and return are two sides, which vary directly with each other. When returns are expected to be high, then risk associated with the choice is also high. Attitude or preferences for risk vary across different investors, and it is known as FRT attitude. Risk tolerance represents one person’s attitude towards taking risk (Dhiman & Raheja, 2018) Risk tolerance implies the readiness of the investor to take risk in order to achieve the investment objective. In order to achieve desired objectives, the willingness to take risk will be high if risk tolerance level is high. To the researcher’s best information, no preceding study was performed, which aims to explain the role of PTs on the FRT, using the Big Five PTs model, and thus, the article attempts to fill this gap in the context of the Indian Capital market.

Literature Review

Personality Traits Leads to Financial Risk Tolerance

Pinjisakikool (2017) stated through his research that all traits of personality are significantly influencing the risk tolerance level. All traits of personality, agreeableness, extroversion, conscientiousness, openness and neuroticism can significantly predict the risk tolerance of an investor. Dickason and Ferreira (2018) investigated the association of behavioural finance biases with investor’s personality and certain level of risk tolerance. The results indicated that investors with conservative investor personality and low-risk tolerance level have mental accounting biases, whereas investors with radical investor personality and high-risk tolerance levels have self-control bias. The study found a strong relationship among behavioural finance biases, personality type and risk tolerance levels. Dhiman and Raheja (2018) through their research conducted on 500 investors of LSC Securities Ltd, concluded that the connection between different PTs and the level of risk tolerance for financial products are statically significant. The relationship quoted in the study was positive in direction, implying that a point increase of one point in PT leads to 0.152 points increment in the risk tolerance attitude. Out of the various dimensions of PTs, three attributes are significantly related with FRT, namely agreeableness, openness and extroversion. Kannadhasan et al. (2016), through the research conducted on the sample size of 951 respondents, using structural equation modelling (SEM), came to the conclusion that personality type is a noteworthy forecaster in forecasting FRT. They stated that investors belonging to personality type A are more willing to take risk, thus holding more FRT as compared to the invertors having type B personality type. Bucciol and Zarri (2017) provided evidence of closer relationship between individual’s financial risk-taking behaviour with their personality characteristics. Their analysis revealed that three important personality taxonomies, that is, agreeableness, significant anxiety and cynical hostility articulate portfolio choice. Thanki and Baser (2019), through their research conducted on the sample of 380 investors of the state of Gujarat, using cross-sectional analytics and SEM, stated that type of personality and other demographic factors, such as age, income level and the marital status of an investor, are momentous prognosticator of his/her FRT. Out of all the variables taken for the study, PT has the most significant connection with the level of associated FRT. The study stated that investors of type A personality have more FRT. Grable (2000) also stated through his research that personality type and risk tolerance are related to each other. Type A personality individuals are more willing to take risk as compared with type B personality. The study was performed using discriminant analysis. Kubilay and Bayrakdaroglu (2016) stated through their research, conducted in Istanbul using logistic regression, that there is a relationship between PT exhibited by the investors and their FRTs. It was found in the study that people who are more neurotic and more open and more aggregable generally take more risk as compared to the persons who are more conscientious. Filbeck et al. (2005), in their research, explored the association between different dimensions of PT and the associated FRT and stated that PT explains the risk tolerance of the investor, and the relationship is explained using a non-linear function. Pak and Mahmood (2015) concluded in their study that they exhibit an influence of PT and risk-taking attitude of the investors. The study finds that PT openness to experience exhibits positive relationship, while agreeableness has a negative influence on risk-taking attitude of the investors. Oehler and Wedlich (2018), in their study, concluded that risk-taking determinants are influenced by different PTs like extraversion and neuroticism. Rabbani et al. (2019), in their research work, scrutinized the connection between Big Five PTs and risk tolerance level among the baby boomer generation. Ferreira (2019) stated that different investors having distinguished personalities have a different level of FRT levels. Investors with more openness trait in their personality significantly differ from other investors. Chen et al. (2019), through their research, stated that the personality of an individual has a significant impact on the long- or short-term performance of the trading decisions. Persons having traits other than neuroticism perform better under investments having long-term horizon. Sadiq and Akhtar (2019) stated that investors having type A personality are more risk-takers as compared to the investors holding type B personality. Lawrenson and Dickason-Koekemoer (2020) found that educational level and personality taxonomies of female investors are strongly associated with FRT.

Dimensions of Personality Traits

Agreeableness

Agreeableness (AG) is a PT, which is more closely associated with warmth, friendliness and tactfulness. People who are high on this trait usually hold an optimistic view of human nature and easily get along well with others individuals. Often, the absence of this trait in the person is associated with being ‘distrustful, self-focused, and ruthless’ (Costa & McCrae, 1992). Durand et al. (2008) stated that people who are more agreeable are more prone to take risk and generally take more risk. Pak and Mahmood (2015) stated that there is a negative influence of this PT on the FRT of the investor. Kubilay and Bayrakdaroglu (2016) stated that people who are more agreeable hold low FRT. Nga and Yien (2013) concluded that this has a negative relation with risk aversion. Rabbani et al. (2019) argued that the more the presence of agreeable trait in the personality of the investor, the lesser will be the risk tolerance level.

Extroversion

Extraversion (EX) is a PT associated with being optimistic, positive, self-confident and full of energy (Weller & Tikir, 2011). Extroverts are more inclined towards leadership qualities and experience less anxiety. Persons who are good holders of extraversion trait are more involved in social activities Ashton (2013). Lucas and Diener (2001) reported that extraversion is more associated with characteristics such as self-confidence, sociability and an added need for external stimulus. Filbeck et al. (2005) stated that this trait does not have any measurable impact on risk tolerance, while the study of Mayfield et al. (2008) stated that they exhibit a negative but not significant relationship between the two. Kubilay and Bayrakdaroglu (2016) reported that extraversion is significant in predicting the FRT of the investor and also concluded that people who are more extroverts are generally good at holding risk preferences. Oehler and Wedlich (2018) reported that an individual who is an extrovert has a lesser risk-averse attitude and therefore prefer more risk while taking investment decisions. Rabbani et al. (2019) argued that more the extraversion level of the individual, the more risk tolerant the investor will be.

Conscientiousness

Conscientiousness (CO) is a PT associated more with carefulness, desire of doing a task well and to take obligations for another person’s responsibly. Conscientious people are hard-working and are more reliable. This trait calls for more self-discipline, a tendency to be more organized, prefer planning rather than spontaneous behaviour and attitude. Kubilay and Bayrakdaroglu (2016) stated that people who are more conscientious hold low FRT. Durand et al. (2008) report that there is negative association between attribute and fondness of risk tolerance. According to them, if an investor is more conscientious, then the preference will be for less risk. Nga and Yien (2013) concluded that this has a significant relationship with risk aversion. Rabbani et al. (2019) argued that the more the presence of conscientiousness trait in the personality of the investor, the lesser will be his risk tolerance level.

Openness

The PT of openness (OP) to experience specifically quantifies our approachability to novel ideas or experiences. Weisberg et al. (2011) report that openness is related to the ability and curiosity for giving attention to and to the processing of a complex stimuli. Individuals who hold this trait are found to be imaginative, forward-thinking and ingenious (Martins, 2002). Pak and Mahmood (2015) reported that there is an optimistic connection with the FRT of the investor. Mayfield et al. (2008) stated that significant negative relation exists between the degree of openness and the level of risk aversion. This is in contrast with the study of Filbeck et al. (2005). Durand et al. (2008) and Kubilay and Bayrakdaroğlu (2016) report that openness to experience is significant in predicting the FRT of the investor and also concluded that people who are more open are generally good at holding risk preferences. Nga and Yien (2013) concluded that relationship is positive but not significant with risk aversion. Rabbani et al. (2019) argued that more the openness level of the investor, the more risk tolerant the investor will be.

Neuroticism

Migliore (2011) defined neuroticism (NEU) as a state wherein there is instability of emotions, and this trait is directly linked with the presence of high anxiety and stress level. These individuals are generally found to be insecure, temperamental and impetuous (McCrae & Costa, 1997). Peterson (2012), Durand et al. (2008), and Kubilay and Bayrakdaroğlu (2016) report that neuroticism is a momentous forecaster of the level of FRT behaviour of the investor and also concluded that people who are more neurotic are generally good at holding risk preferences. Nga and Yien (2013) determined that this has an adverse connection with risk aversion. Oehler and Wedlich (2018) concluded that persons scoring high on this parameter are usually more risk averse and therefore prefer less risk.

Research Objectives

The Big Five dimensions of personality traits (PT) have been defined by using standardized previous scale. If all the dimensions qualify the validity and reliability issues in measuring PT, researchers will check the effect of these dimensions on FRT of investors. The following two objectives have been framed to test the proposed model.

Objective 1: To examine the association/direct effect of Big Five PT on investors’ FRT.

Objective 2: To check the model improvement by an application of second-order confirmatory factor analysis (CFA), that is, PT leads to investors’ FRT.

The primary purpose of this study was to investigate the applicability of PTs on FRT of investors living in Delhi and the National Capital Region (NCR). These objectives could be achieved by examining the component structures of dimensions of PT, its reliability and validity, and their association with FRT of investors.

Methodological Framework

Data Source, Sample Frame and Participants Description

For this study, primary data were collected by using purposive sampling method on the sample size consisting of 599 participants. The area of study covered in this research was the investors of Delhi and NCR who invested into the capital market through Angel Broking Co. The rationale of selecting cities for collecting primary data is based on the Household Survey, Main Report sponsored by Securities and Exchange Board of India (SEBI) and conducted by National Council of Applied Economic Research (NCAER) in July 2011. As per this report, Delhi stood at the second spot in terms of percentage of investors and savers (Nagarajan et al., 2011). Investors of Angel Broking Co. were selected for the study because the company is one of the big broking company, which is a registered member of BSE, NSE and also multi commodity exchange. A standardized online survey questionnaire has been used for the field survey. To examine the reliability statistics of the collected data, a pilot study was conducted on 60 investors, where the Cronbach’s alpha was found to be more than 0.7, which means that the data were reliable. Total 750 online questionnaires were distributed to investors out of which only 614 positive responses were received. After eliminating the incomplete records, a total of 599 usable responses were quoted into SPSS Version 20 for additional enquiry. A sample of nearly 599 respondents was appropriate as suggested by Kline (2011) that there should be at least a minimum of 10 responses for per case/item of questionnaire and the items included in the questionnaire were 32. The sample comprised the investors with different income levels, occupation, age group and gender. In the sample, the majority of respondents were males who were working in private organizations aged between 30 years and 40 years of age. In terms of education, 70% of the investors were well education with college graduation. The detailed demographic profile of respondents is presented in Table 1.

Table 1.

Demographic Details of the Respondents

Demographic	N	%
Education
Intermediate	120	20.03%
Graduate	185	30.88%
Postgraduate	180	30.05%
Other	114	19.03%
Gender
Male	316	52.75%
Female	283	47.24%
Age
Between 22–32	145	24.20%
32–42 years	210	35.05%
42–52 years	172	28.71%
Above 52 years	72	12.02%
Income (per annum)
Between 2 -5.5 lakh	148	24.70%
5.5–8.5 lakh	212	35.39%
8.5–12.5 lakh	174	29.04%
Above 12.5 lakh	65	10.85%
Type of organization
Public	224	37.39%
Private	375	62.60%
Nature of work
Contractual	194	32.38%
Regular	207	34.55%
Permanent	198	33.05%

Source: The authors.

Measures and the Research Instruments

This section presents an estimation of dimensionality of PT and the epistemic relationships. The relationship between constructs and their indicators is known as an epistemic relationship (Picón et al., 2014). A well-structured standardized questionnaire consisting of 38 questions was adopted as a main survey instrument for the establishment of the epistemic relationship. The questionnaire comprises questions related to demographic/socio-economic factors (six items, multiple choices) and questions of the Big Five PTs and investors’ FRT. For both the dependent and independent variables, six different scales have been identified.

FRT behaviour is a dependent variable that was analysed by using a structured multidimensional survey questionnaire. The scale comprises 10 items based on the 5-point Likert scale as adapted by Gilliam et al. (2010) and Huhtala (2018). During data analysis, only four questions were found to be useful from these seven questions as per their regression weights.

The scale of the Big Five PTs was adapted from the work of McCrae and Costa (2003) and along with the work of Mayfield et al. (2008), consisting of 22 questions based on the 5-point Likert scale. Small modifications were made at the time of framing the questions as per the different understanding levels of the respondents.

Analysis

The proposed model was tested by using Analysis of Moment Structure (AMOS, version 21), which is a co-variance-based software and along with the use of SEM technique. The SEM technique is the most appropriate technique as it helps in evaluating the series of autonomous multiple regression equations simultaneously. This is also a helpful technique to find the association between different variables (Rai et al., 2019). This technique is also able to assimilate latent variables and measure the error terms during the assessment process (Hair et al., 2011; Nusair & Hua, 2010). In addition, SEM is a technique, which analyses complicated behavioural relationships by establishing the relationship between the measurement model and structural models (Nusair & Hua, 2010).

Construct Validity and Confirmatory Factor Analysis

A test of CFA was conducted to assess the statements of the Big Five PTs and FRT, with the objective to identify how well these items explain the latent variables as per standardized goodness-of-fit indices. For this objective, two models were developed: Model 1 examines the correlation/first-order CFA between factors of PT and FRT of investors (Figure 1). Model 2 comprised the PT as a second-order factor and its correlation with FRT (Figure 2). In CFA, the factors clearly showed validity issues as presented in Table 2. The standardized factor loadings of the statements of all the factors are more than 70, which is appropriate as per the suggested value (Hair et al., 2006). The convergent validity was proved by average variances extracted (AVEs), which was more than 50, and the t-values were more than 2.57 (Netemeyer et al., 2003) for all the factor loadings. The discriminant validity was also proved by the square root of the AVE for each factor, which was more than its correlations with other factors (Fornell & Larcker, 1981) and the maximum shared variance (SMV) was less than AVE as presented in Table 3. For the developed models, CFA revealed a reasonably well goodness-of-fit for both the Big Five PT and FRT, based on the following criteria goodness of fit.

Figure 1.

Source: The authors.

Figure 2.

Source: The authors.

Table 2.

Summary of Confirmatory Factor Analysis

Variables	Label	SL	R²	CR	AVE	SMC
Agreeableness (AG)	AG 1 AG 2 AG 3 AG 4	.88 .89 .81 .60	.77 .79 .66 .37	0.878	0.647	.77 .79 .65 .36
Extroversion (EX)	EX 1 EX 2 EX 3 EX 4 EX 5	.56 .81 .80 .77 .79	.32 .66 .63 .59 .63	0.865	0.565	.31 .66 .63 .58 .62
Conscientiousness (CO)	CO 1 CO 2 CO 3 CO 4	.85 .80 .82 .61	.72 .64 .67 .37	0.854	0.598	.72 .64 .66 .36
Openness (OP)	OP 1 OP 2 OP 3 OP 4 OP 5	.70 .80 .82 .74 .75	.49 .63 .68 .56 .55	0.875	0.583	.48 .63 .68 .56 .55
Neuroticism (NEU)	NEU 1 NEU 3a NEU 3b NEU 4	.71 .76 .71 .71	.51 .58 .51 .51	0.816	0.816	.50 .57 .50 .51
Financial Risk Tolerance (FRT)	FRT 1 FRT 2 FRT 3 FRT 4	.81 .85 .71 .69	.66 .73 .50 .47	0.853	0.594	.65 .72 .50 .50

Source: The authors.

Table 3.

Corelation among factors & Discriminant Validity Analysis from CFA

	AVE	MSV	ASV	FRT	OP	AG	EX	NEU	CO
FRT	0.594	0.145	0.134	0.771
OP	0.583	0.376	0.273	0.380	0.764
AG	0.647	0.327	0.226	0.367	0.508	0.804
EX	0.565	0.524	0.304	0.351	0.559	0.523	0.752
NEU	0.526	0.524	0.328	0.353	0.613	0.572	0.724	0.725
CO	0.598	0.289	0.226	0.381	0.523	0.372	0.534	0.538	0.773

Source: The authors.

Note: For discriminant validity AVE > MSV and AVE > ASV and all the boldfaced, which is square root of the AVE for each factor, is more than its correlations with other factors.

Model 1 (fit indices): p-Value < 0.001, chi-square = 911, df = 284, CMIN/df = 3.21, the value of comparative fit index (CFI) = 0.92, whereas value of goodness-of-fit index (GFI) = 0.90, Tucker–Lewis index (TLI) = 0.91 and badness of fit indicated as root mean square error of approximation (RMSEA) = 0.061, root mean square residual (RMR) = 0.039

Model 2 (fit indices): p-Value <0.001, chi-square = 939, df = 293, CMIN/df = 3.19, comparative fit index (CFI) = 0.92, goodness-of-fit index of model fir (GFI) = 0.89, model fit index known as Tucker–Lewis index (TLI) = 0.91, badness of fit indicated as root mean square error of approximation (RMSEA) = 0.060 and root mean square residual (RMR) = 0.038.

Structural Model

Researchers have attempted to distinguish the two different models with the help of using the statistical technique known as the SEM technique. The first model (Model 3) examines the association/direct effect of dimensions of Big Five PT on FRT, whereas the second research model (Model 4) is an application of second-order CFA, that is, PT leads to FRT. In Model 3, the researchers have established that the coefficient score of the association between Extroversion (EX) and Neuroticism (NEU) is not significant with FRT (Figure 3). In Model 3, the path analysis results indicate that the critical ratio test and regression weight of OP (0.004, p <0.05), AG (0.004, p <0.01) and CO (*, p <0.01) have a strong association with FRT (see Table 4), whereas, in Model 4, the relationship between PT as a second order and FRT are significant (Figure 2). In path analysis, PT as the second order factor is a significant predictor of FRT, explaining 23% (R²) of the variance in FRT of individuals of Delhi (see Figure 4, Table 5). The path analysis results have been presented in Table 5, which indicate the critical ratio test and regression weight that signify positive association of PT with FRT. In addition, to distinguish between the two research models (Model 3 and Model 4), we have also applied the test known as Akaike information criterion (AIC) (Akaike, 1974). According to this test, the model with least AIC statistical score is preferred. The AIC value of Model 3 is 1,055.63, and Model 4, it is 1,041.21. The AIC test result indicates that the personality trait (Model 4) as a second-order factor is preferred over the other direct effect of the Big Five personality model (Model 3). Therefore, the results provided an evidence to suggest that personality trait plays an important role in the increase in FRT levels of individuals.

Figure 3.

Source: The authors.

Table 4.

Results of Structural Model

Path	Estimates	S.E.	C.R.	P
FRT←OP	.176	.078	2.27	.004
FRT←AG	.247	.077	3.20	.001
FRT←CO	.255	.074	3.44	***
FRT←EX	.063	.074	.846	.398
FRT←NEU	.009	.102	.086	.931

Source: The authors.

Note: *p < 0.01.

Table 5.

Results of Structural Model

Path	Estimate	S.E.	C.R.	P
AGss←PT	.822	.084	9.778	***
CO←PT	.867	.090	9.623	***
EX←PT	1.352	.112	12.084	***
NEU←PT	1.185	.102	11.658	***
OP←PT	1.000
FRT←PT	.804	.096	8.335	***

Source: The authors.

Objective 1: Model 3 (Figure 3)

Objective 2: Model 4 (Figure 4)

Figure 4.

Source: The authors.

Conclusion

The findings of the current research study may have implications for studies based on behavioural finance, personality and also noteworthy for studies, which are more inclined towards FRT. The statistics of correlation suggested that the Big Five PTs are highly correlated with the risk tolerance level of individuals. The findings suggested that PTs are vital for active administration of individual finances to enhance risk tolerance levels. However, when we check the direct effect of the different traits of personality as per the Big Five model of personality on the level of FRT through regression, it was observed that individuals with traits of personality, that is, agreeableness, conscientiousness and openness showed a substantial connection with the extent of tolerance for financial risk, whereas PTs like extroversion and neuroticism had no significant relationship with FRT. The findings of this study are on similar patterns with the outcomes of the study performed by van der Linden et al. (2010); they found a certain deviance of connection between the model of Big Five PTs and FRT in their correlation and regression studies. This study also narrated that the above-mentioned deviation may be the result of overlapping between variance among the different dimensions of the model known as the Big Five PTs and identified the PT as a second-order factor of FRT. When we modelled PT as a second-order factor, the results showed that 23% of FRT was predicated by PT. However, the results do not annihilate the importance of extroversion- and neuroticism-type personality but, in turn, provides evidence to consider these factors as important to explain PT, which does have a significant positive effect on FRT. Moreover, these factors were identified to have an important moderate correlation with FRT. The results recommended that PT as a second-order factor leads to FRT.

Managerial Implications

The major findings of the research work have numerous applied implications for economic experts, financing community and the distinct individual investors. Subsequently, the personality model of Big Five PTs have an impact on the level of risk tolerance, while the monetarist can facilitate a psychologically adapted portfolio on the basis of behaviour traits of their clients. In addition, for distinct investors, the present research work has found an important implication in deciding about their investment patterns that should base upon their PT and their risk tolerance levels. Furthermore, the significant implications of our findings are that in the research area of financial decision and risk-taking behaviour, personality characteristics should be empirically investigated. Various previous studies have identified that personality characteristics have a strong association with risk-taking behaviour in different ways (Terracciano et al., 2008; van Dam et al., 2005). Our research study contributes to the literature of financial domain and financial education programmes by establishing a connection between PTs and financial risk-taking.

Limitations and Future Research

Although the study has many managerial implications, this research study is also not free from limitations, First, the investigation has been carried out on the sample size of 599 participants and the only area of study is the Delhi city, which may not be applicable for a larger population and in other cities of the country. Second, the modelling approach adopted in this study is more concentrated towards prediction of relationships. Third, only the dimensions of PT have been taken to check the FRT of individuals, whereas other social, economic and demographic variables also have an impact on risk tolerance. Moreover, caution is advised in terms of future research, when generalizing the results to other regions. Further studies should be carried out to check the relationship of FRT with different variables such as financial behaviour, emotional intelligence, long-term portfolio returns, accumulation of wealth and risk-taking attitude of investors. The present study can also be carried out with diverse inhabitants like qualified financiers and retired individuals.

Footnotes

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The authors received no financial support for the research, authorship and/or publication of this article.

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