Establishing a link between risk tolerance, investor personality and behavioural finance in South Africa

Figures & data

Table 1. Descriptive statistics for Dospert

Scale	Nr	Average inter-term correlation	Std. dev.	Skewness	Kurtosis	Cronbach’s α
Dospert	28	0.170	0.822	0.191	−0.198	0.852

Table 2. Dospert/constructs and behavioural finance biases

Dospert constructs		Sum of squares	Df	Mean square	F	Sig.
Dospert total	Between groups	6.938	8	0.867	1.282	0.249
	Within groups	759.535	1 123	0.676
	Total	766.474	1 131
Ethical	Between groups	23.249	8	2.906	3.799	0.000*
	Within groups	859.062	1 123	0.765
	Total	882.311	1 131
Financial	Between groups	24.206	8	3.026	3.026	0.002*
	Within groups	1 122.900	1 123	1.000
	Total	1 147.107	1 131
Health	Between groups	26.637	8	3.330	1.590	0.123
	Within groups	2 351.733	1 123	2.094
	Total	2 378.370	1 131
Recreational	Between groups	22.179	8	2.772	1.072	0.380
	Within groups	2 903.422	1 123	2.585
	Total	2 925.602	1 131
Social	Between groups	11.471	8	1.434	1.107	0.356
	Within groups	1 455.117	1 123	1.296
	Total	1 466.588	1 131

*Significant at p < 0.05 level.

Table 3. The relationship between risk level, investor personality and behavioural finance biases

	Investor personalities						Risk tolerance
	Ethical	Financial	Health	Recreational	Social	Total	SCF
Behavioural finance biases	Mean (std dev)	Mean (std dev)	Mean (std dev)	Mean (std dev)	Mean (std dev)	Mean (std dev)	Mean (std dev)
Representativeness	2.012	2.877	2.810	3.406	4.980	3.246	2.77
	(0.988)	(1.060)	(1.544)	(1.595)	(1.242)	(0.891)	(0.950)
Overconfidence	1.988	2.855	2.875	3.994	4.983	3.372	2.900
	(0.916)	(1.094)	(1.682)	(1.802)	(1.215)	(0.877)	(0.759)
Anchoring	2.000	2.688	2.633	3.133	4.755	2.498	2.730
	(0.930)	(0.856)	(1.537)	(1.552)	(1.240)	(0.795)	(0.884)
Gamblers fallacy	1.759	3.277	2.861	3.555	5.629	3.456	2.670
	(0.565)	(1.099)	(1.425)	(1.285)	(1.132)	(0.656)	(1.000)
Availability bias	1.921	3.101	2.621	3.180	5.027	3.209	2.630
	(0.779)	(1.029)	(1.322)	(1.538)	(1.000)	(0.752)	(0.879)
Loss aversion	1.700	2.799	2.358	3.529	4.863	1.989	2.920
	(0.813)	(1.165)	(1.245)	(1.855)	(1.202)	(0.912)	(0.739)
Regret aversion	2.065	2.511	2.800	3.383	4.930	3.156	3.130
	(0.948)	(0.921)	(1.453)	(1.702)	(1.019)	(0.841)	(0.883)
Mental accounting	1.861	2.990	2.405	3.336	4.918	2.474	2.700
	(0.833)	(0.985)	(1.343)	(1.597)	(0.934)	(0.745)	(0.927)
Self-control	1.699	2.680	2.532	3.245	5.132	5.095	2.810
	(0.681)	(0.881)	(1.321)	(1.584)	(1.026)	(1.713)	(0.791)

Table 4. Linking risk tolerance, investor personality and behavioural finance biases

Risk level	Investor personality	Behavioural finance bias	Supporting author
Low risk	Conservative	Loss aversion	Pompian (2016)
Low risk	Conservative	Mental accounting	Jagongo and Mutswenje (2014)
Medium risk	Conservative	Anchoring	Pompian (2016)
Medium risk	Moderate	Regret aversion	Bourse Securities (2016)
Medium risk	Moderate to growth	Representativeness	Pompian (2016)
Medium risk	Moderate to growth	Overconfidence	Lake (2017)
Medium risk	Moderate to growth	Gamblers fallacy	Lucarelli and Brighetti (2011)
Medium risk	Moderate to growth	Availability bias	Abreu (2014)
High risk	Aggressive	Self-control	Pompian (2016)

Source: Author compilation

Figure 1. Risk tolerance, investor personality and behavioural finance biases.

Source: Author compilation.

Pompian, M. M. (2016). Risk profiling through a behavioural finance lens. Virginia, Charlottesville: CFA Institute Research Foundations.

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Jagongo, A., & Mutswenje, V. S. (2014). A survey of the factors influencing investment decisions: The case of individual investors at the NSE. International Journal of Humanities and Social Science, 4(4), 92–102.

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Bourse securities. (2016). Bourse weekly review: Making the most with your US dollars. Retrieved from https://bourseinvestment.com/bourse-weekly-review-making-us-dollars/

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Lake, R. (2017). Dangers of being an overconfident investor. https://money.usnews.com/investing/articles/2017-06-13/the-dangers-of-being-an-overconfident-investor Date of access: 12 October 2017

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Lucarelli, C., & Brighetti, G. (2011). Risk tolerance in financial decision making. UK: Palgarave Macmillan.

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Abreu, M. (2014). Individual investors‘ behavioural biases. Teaching economics working papers. ISSN No 2182-1.

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