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UROP: cROSS-NATIONAL dIFFERENCES IN fINANCIAL RISK AVERSION

UROP: cROSS-NATIONAL dIFFERENCES IN fINANCIAL RISK AVERSION. Zheng Xinyi DEPARTMENT OF ACCOUNTING AND FINANCE. Financial risk aversion. What is risk aversion?. Consumers and Investors Uncertainty Attempt to Lower the Uncertainty Example: Bank versus Stock.

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UROP: cROSS-NATIONAL dIFFERENCES IN fINANCIAL RISK AVERSION

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  1. UROP: cROSS-NATIONALdIFFERENCES IN fINANCIAL RISK AVERSION Zheng Xinyi DEPARTMENT OF ACCOUNTING AND FINANCE

  2. Financialriskaversion What is risk aversion? • Consumers and Investors • Uncertainty • Attempt to Lower the Uncertainty • Example: Bank versus Stock

  3. The Factors that affectinvestor’s financial risk aversion Increasing levels of risk tolerance have been associated with being: • Male • Older • Single • Professionally Employed with Higher Incomes • More Education • More Financial Knowledge • Increased Economic Expectations ---- Bajtelsmit& Bernasek, 1996; Blume, 1978; Hawley & Fujii, 1993-1994; McDermott, 1979; Rubin & Paul, 1979; Sung & Hanna, 1996; Baker & Haslem, 1974; Cicchetti & Dubin, 1994; Cohn, Lewellen, Lease, & Schlarbaum, 1975; Masters, Riley, & Chow, 1992; Schooley & Worden, 1996; Shaw, 1996; Zhong & Xiao, 1995

  4. Nationality? American Versus Chinese: Who you think is more risk-averse? Who you think is more risk-seeking? What Else?

  5. Risk Aversions in Investment, Medical, and Academic decisions • American Investors Are More Risk-averse Than Chinese Investors • “Cushion Hypothesis” • Individualistic Culture Versus Collectivist Culture ---- Weber and Hsee (1998, 1999)

  6. Surveydesign • Sample: Undergraduate Business Students (213 valid feedback in total) • China: Ocean University of China, School of Management, • U.S.: University of Minnesota Duluth, Labovitz School of Business and Economics • Survey • Self-assessment: • Five Parts: • Demographical Factors • General Risk Aversion • Financial Risk Aversion • Social Cushion • Scenario Questions

  7. pART1: demographical factors • Age • Gender • Business Knowledge (Especially Financial Knowledge) • Economic Status

  8. pART 2: General risk aversion • Enjoyment of the Visceral Sensation of Fear Itself • “Glossophobia” (i.e. speech anxiety) • Initiative • Optimistic • Resolute • Open Position • Impulse • Aggressive

  9. pART3: Financial risk aversion • Similarly, we measured the financial risk version by observing some related factors: • Financial Discretion • Interest in High-risk Financial Activities • Attitude Toward Financial Activities • (i.e., optimistic or pessimistic) • Interest in Financial Markets

  10. pART 4: Social Cushion • For all different social cushions, we mainly focus on the cushion from families as it is the subject mainly discussed when referring “cushion” in the previous studies. • Family Bonds • Independence • Financial Help from Family • Psychological Help from Family

  11. sCENARIO 1: The price of a lottery

  12. sCENARIO2: STOCK VERSUS RISK-FREE BOND

  13. BASIC STATISTICal SUMMARY

  14. Correlation

  15. Regression modelingWITH INTERACTIONS-- Scenario 1 Pool Sample Significant Factors: Gender Sum24: Financial Risk Aversion Nationality

  16. REGRESSION MODELINGwith iNTERACTIONS--Scenario 2 Pool Sample Significant Factors: Financial Work Experience Family Nationality Interaction of Major and Nationality Interaction of Financial Work Experience and Nationality Interaction of Family and Nationality

  17. cONCLUSION Based on the empirical findings, now we know Chinese students are less risk-averse in financial decisions than American students, but social cushion is not so important in the process. Except the finding above, we also find that: • Regardless of nationality, people who has less risk aversion in their daily activities has less risk aversion in financial activities as well, and at the same time, they receive less social cushion. • The economic status of family has a positive relationship with the social “cushion”. • Social “cushion” has a negative relationship with the risk-aversion (i.e., the more social cushion one has, the more risk-averse he is), but the affect is not very significant, especially compared to other factors (e.g., gender, family status, nationality, etc.).

  18. As social “cushion” is not a significant variable in our model, what other factors may lead this cross-national difference in financial risk aversion? Some possible explanations: • Tuition and Student Loan in U.S. • One-child Policy in China • Different mechanisms of colleges (local students versus interstate students) • The Limitations of Self-assessments (subjective)

  19. FUTURE WORK • Sample Size • Survey Design • Asking questions properly. • The definition of “social cushion”. • Sample Bias • Gender • U.S Sample (Male-to-Female): 2.07:1 • China Sample (Male-to-Female): 0.36:1 • The distribution of the economical Statuses of the Family

  20. Q&A

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