Why are older investors less willing to take financial risks?

Brooks, C. ORCID: https://orcid.org/0000-0002-2668-1153, Sangiorgi, I. ORCID: https://orcid.org/0000-0002-8344-9983, Hillenbrand, C. ORCID: https://orcid.org/0000-0002-2929-5098 and Money, K. (2018) Why are older investors less willing to take financial risks? International Review of Financial Analysis, 56. pp. 52-72. ISSN 1057-5219 doi: 10.1016/j.irfa.2017.12.008

Abstract/Summary

We investigate the link between age and tolerance of financial risks in the context of attitude to risk questionnaires completed by clients when meeting their financial advisors. Using a unique database comprising the responses to over half a million such questionnaires, we show that risk tolerance declines at an increasing, albeit slow, rate with age. We investigate the explanatory power of the ability to bear losses, declining investment horizon and retirement effects, finding that these variables have considerably greater explanatory power for the cross-section of risk aversion than age, and that they are only able to partially mediate the link between age and risk tolerance. We are unable to uncover any evidence that declining cognitive abilities among older investors are able to explain their lower willingness to take financial risks. Overall, our results are indicative of a modest age effect in risk tolerance that cannot be attributed to changes in other observable characteristics that differ between younger and older investors.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/74683
Item Type	Article
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting Henley Business School > Leadership, Organisations, Behaviour and Reputation
Publisher	Elsevier
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