Robert Faff, Terrence Hallahan and Michael McKenzie
Using a very large sample of psychometrically derived risk profiles of adult Australians, the paper aims to explore the linkage between financial risk tolerance and gender.
Abstract
Purpose
Using a very large sample of psychometrically derived risk profiles of adult Australians, the paper aims to explore the linkage between financial risk tolerance and gender.
Design/methodology/approach
The key proxy of risk tolerance score (RTS) derives from a 25 question survey devised by Finametrica and used in real client situations. Using multiple regression analysis in which RTS is the dependent variable, the paper tested the importance of gender in explaining cross‐sectional variation, while controlling for a range of demographic characteristics. The impact of gender was further explored through dummy variable enhanced regression analysis constructed to test the increment in each demographic coefficient derived from being female relative to the base case of being male.
Findings
The paper documents strong evidence that women differ from men in their attitude to financial risk taking. In general, women are shown to be less risk tolerant than counterpart males, with this differential varying depending on the demographic feature considered. We also find that marital status, number of dependents, age, education, income, combined income, and net assets are significant determinants of risk tolerance in their own right.
Originality/value
Given the extent to which women have more conservative risk profiles and the extent to which this conservatism is exacerbated with age (given the longevity advantage of women), one would expect to see asset allocation decisions leading to an overall shift to less risky investment portfolios.
Details
Keywords
Hassan Tanha, Michael Dempsey and Terrence Hallahan
– The purpose of this paper is to understand that option pricing is the response of option implied volatility (IV) to macroeconomic announcements.
Abstract
Purpose
The purpose of this paper is to understand that option pricing is the response of option implied volatility (IV) to macroeconomic announcements.
Design/methodology/approach
The authors use high-frequency data on ASX SPI 200 index options to examine the response of option IV, as well as higher moments of the underlying return distribution, to macroeconomic announcements. Additionally, the authors identify the response of the moments as a function of moneyness of the options.
Findings
The findings suggest that in-the-money and out-of-the money options have difference characteristics in their responses, leading to the conclusion that heterogeneity in investor beliefs and preferences affect option IV through the state price density (SPD) function.
Originality/value
The research contributes to the literature that examines whether IV captures the beliefs of market participants about the likelihood of future states together with the preferences of market participants towards these states. In particular, the authors relate changes in option IV to changes in macroeconomic announcements, through the impact of these announcements on the moments of the SPD function.