Role of Demographic Variables in Investment Decisions

Investment behaviour of an investor is strongly influenced by his/her risk tolerance level. However demographic characteristics of the investors drive their risk aptitude. Present study aims at investigating the critical role of demographic variables of age, gender, income, marital status, educational qualifications and occupation on risk tolerance level of investors. An instrument developed by Gomez-Mejia and Balkin (1989) is used to measure the risk aversion level. To interpret the results, the scores were evaluated by the theory developed by Barsky et al. (1997) is used. Regression analysis is used to investigate the relationship between above mentioned demographic variables and overall risk tolerance level, high risk tolerance level and low risk tolerance level of investors with respect to investment behaviour. The results of the study indicate that the dynamic role of demographic variable in present scenario is influencing the risk tolerance and aversion aptitudes to a large extent. The regression results indicate that demographic variables of age, gender, income and marital status have a significant relationship with overall risk tolerance level. The results of the study gives valuable insights into investor‟s risk tolerance level which can be used to make necessary changes in portfolio management strategies.