Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Market Changes Affect Risk Tolerance, MU Study Finds

29.09.2010
MU study shows positive correlation between risk tolerance and stock market returns

As the U.S. economy continues to lag, many investors remain wary about taking risks with the stock market. Now, researchers at MU have concluded that this attitude toward investment risk-taking is more than just a recent trend.

Rui Yao, a University of Missouri assistant professor in the Personal Financial Planning department in the College of Human Environmental Sciences, has found that during the past two decades, the risk tolerance of investors is positively correlated to the movements of the stock market, meaning that investors are likely to invest more when market returns are high, and withdraw partially or even completely from the market when returns are negative.

Rui Yao, a University of Missouri assistant professor in the Personal Financial Planning department in the College of Human Environmental Sciences.

Yao warns that this tendency will ultimately lead to ineffective investment tactics and unnecessary financial losses. She says that a positive correlation between risk tolerance and stock market returns shows that investors are buying stocks at a high price and selling them at a low price, which is not sound investment strategy.

“To maximize returns, the ideal strategy is to buy stocks at a low price, with the hope of selling them at a higher price,” Yao said. “However, many investors seem to be unwilling to take risks when the market is at a low point and seem content to only invest when the market is at a high point.”

In her study, Yao examined the Health and Retirement Study (HRS) to investigate changes of risk tolerance levels over time in response to stock market returns. The HRS is a longitudinal study conducted by the University of Michigan since 1992. During the course of the study, participants were given hypothetical scenarios about income gambles and were assigned to a level of risk tolerance based on their answers. The study tracked the responses of each participant between 1992 and 2006 and compared it to the state of the stock market at the time of each response.

Yao found that many Americans are not behaving according to rational economic model assumptions. She says that such changes in risk tolerance in response to market returns may be an indication that investors, and possibly their financial advisors, overestimate their ability to understand risk and assess individual risk tolerance.

“Having the ability to understand risks and assess risk tolerance has a direct impact on individual well-being,” Yao said. “Ultimately, improved financial education is the best way to help Americans overcome the bias of over-weighting recent market performance when making investment decisions.”

This study was published in the Journal of Economic Issues.

Nathan Hurst | EurekAlert!
Further information:
http://www.missouri.edu

More articles from Business and Finance:

nachricht Microtechnology industry is hiring – positive developments of past years continue
09.04.2018 | IVAM Fachverband für Mikrotechnik

nachricht RWI/ISL-Container Throughput Index with minor decline on a high overall level
20.03.2018 | RWI – Leibniz-Institut für Wirtschaftsforschung

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Molecular switch will facilitate the development of pioneering electro-optical devices

A research team led by physicists at the Technical University of Munich (TUM) has developed molecular nanoswitches that can be toggled between two structurally different states using an applied voltage. They can serve as the basis for a pioneering class of devices that could replace silicon-based components with organic molecules.

The development of new electronic technologies drives the incessant reduction of functional component sizes. In the context of an international collaborative...

Im Focus: LZH showcases laser material processing of tomorrow at the LASYS 2018

At the LASYS 2018, from June 5th to 7th, the Laser Zentrum Hannover e.V. (LZH) will be showcasing processes for the laser material processing of tomorrow in hall 4 at stand 4E75. With blown bomb shells the LZH will present first results of a research project on civil security.

At this year's LASYS, the LZH will exhibit light-based processes such as cutting, welding, ablation and structuring as well as additive manufacturing for...

Im Focus: Self-illuminating pixels for a new display generation

There are videos on the internet that can make one marvel at technology. For example, a smartphone is casually bent around the arm or a thin-film display is rolled in all directions and with almost every diameter. From the user's point of view, this looks fantastic. From a professional point of view, however, the question arises: Is that already possible?

At Display Week 2018, scientists from the Fraunhofer Institute for Applied Polymer Research IAP will be demonstrating today’s technological possibilities and...

Im Focus: Explanation for puzzling quantum oscillations has been found

So-called quantum many-body scars allow quantum systems to stay out of equilibrium much longer, explaining experiment | Study published in Nature Physics

Recently, researchers from Harvard and MIT succeeded in trapping a record 53 atoms and individually controlling their quantum state, realizing what is called a...

Im Focus: Dozens of binaries from Milky Way's globular clusters could be detectable by LISA

Next-generation gravitational wave detector in space will complement LIGO on Earth

The historic first detection of gravitational waves from colliding black holes far outside our galaxy opened a new window to understanding the universe. A...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

VideoLinks
Industry & Economy
Event News

Save the date: Forum European Neuroscience – 07-11 July 2018 in Berlin, Germany

02.05.2018 | Event News

Invitation to the upcoming "Current Topics in Bioinformatics: Big Data in Genomics and Medicine"

13.04.2018 | Event News

Unique scope of UV LED technologies and applications presented in Berlin: ICULTA-2018

12.04.2018 | Event News

 
Latest News

When corals eat plastics

24.05.2018 | Ecology, The Environment and Conservation

Surgery involving ultrasound energy found to treat high blood pressure

24.05.2018 | Medical Engineering

First chip-scale broadband optical system that can sense molecules in the mid-IR

24.05.2018 | Physics and Astronomy

VideoLinks
Science & Research
Overview of more VideoLinks >>>