An Examination of the Effects of Market Returns and Market Volatility on Investor Risk Tolerance and Investment Allocation Decisions

Courtney M. Droms, Butler University, USA
Kurt Carlson, Georgetown University, USA
William G. Droms, Georgetown University, USA
We examine the joint influence of market volatility and recent market returns on risk tolerance. When market volatility is relatively low, risk tolerance does not depend on recent market returns. However, when volatility is high, recent positive (negative) returns causes investors to report greater (lower) risk tolerance.
[ to cite ]:
Courtney M. Droms, Kurt Carlson, and William G. Droms (2012) ,"An Examination of the Effects of Market Returns and Market Volatility on Investor Risk Tolerance and Investment Allocation Decisions", in NA - Advances in Consumer Research Volume 40, eds. Zeynep G├╝rhan-Canli, Cele Otnes, and Rui (Juliet) Zhu, Duluth, MN : Association for Consumer Research, Pages: 1025-1026.