The Impact of Risk Tolerance in the Albanian Individual Investor Decision-Making During Financial Assets Investments

Blerina Dervishaj and Lorena Cakerri
University of Vlora “Ismail Qemali”,

Abstract

The study attempts to explore whether the level of risk tolerance of the albanian individual investors affects their behaviour while they decide to invest in financial assets. Using Grable and Lytton Risk Measurement Scale, we find that Albanian investors show low - risk tolerance when investing in financial assets. They focus on relatively safe forms of investment alternatives. This low risk tolerance profile of the albanian individual investor, is a result of various significant factors such as: Albania’s being an ex-communist country with a centralised economy for more than fifty years, the over-two-decade long transition of the country accompanied by various financial crises, the current underdeveloped and not consolidated financial market etc. We apply the concepts of regression and correlation to analyze the relationship between risk tolerance and the variables of financial decision making. There is a positive and statistically significant relationship between risk tolerance and investor’s time horizon. The same relationship is found between investor risk tolerance and the amount of money invested in the financial asset. Keywords: Risk Tolerance, Risk Tolerance Measurement Scale, Albanian Individual Investor Decision Making, Financial Asset

Presentation