When it comes to the crunch: retail investor decision-making during periods of market volatility

Brooks, C. ORCID: https://orcid.org/0000-0002-2668-1153 and Williams, L. (2022) When it comes to the crunch: retail investor decision-making during periods of market volatility. International Review of Financial Analysis, 80. 102038. ISSN 1873-8079 doi: 10.1016/j.irfa.2022.102038

Abstract/Summary

Attitude to risk questionnaires are widely used by financial advisors to recommend investments of appropriate risk levels to their clients. Yet the usefulness of this instrument to gauge how investors will react when faced with extreme volatility in the values of their assets remains untested. Using realistic scenarios and based on a large-scale survey in the UK, in this study we examine how the investing public reacts to actual portfolio losses. We find that conventional risk tolerance measures are inadequate for determining whether investors would 'sell out' or hold their portfolios in such circumstances. On the other hand, we find that past experience, emotions and personality characteristics, including measures of financial self-efficacy and extraversion, are significant predictors of investor reactions to market crashes.

Additional Information	Funding Information: We are grateful to Innovate UK and the ESRC for funding this research under Knowledge Transfer Partnership grant number 11748. We thank Distribution Technology for allowing us to use their attitude to risk questionnaire and we are grateful to an anonymous referee for very useful comments on a previous version of the paper. Publisher Copyright: © 2022 Elsevier Inc.
Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/117839
Identification Number/DOI	10.1016/j.irfa.2022.102038
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Uncontrolled Keywords	Retail investors, Risk tolerance, Personality characteristics, Emotions, Financial decisions
Additional Information	Funding Information: We are grateful to Innovate UK and the ESRC for funding this research under Knowledge Transfer Partnership grant number 11748. We thank Distribution Technology for allowing us to use their attitude to risk questionnaire and we are grateful to an anonymous referee for very useful comments on a previous version of the paper. Publisher Copyright: © 2022 Elsevier Inc.
Publisher	Elsevier
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