“An Empirical Analysis of Financial Risk Tolerance and Risk Capacity with respect to Investment Strategies”

DOI: https://doie.org/10.10399/ES.2025593927

Dr. Priti Aggarwal

Keywords:

Risk Tolerance, Risk Capacity, Investor behaviour, Investment strategies

Abstract:

Financial risk tolerance plays a critical role in investment decisions. It acts as a compass, guiding individuals towards investments that align with their comfort level for risk. Since investment decisions aim to maximize expected utility (satisfaction from returns), accurately measuring risk tolerance becomes essential.
This research paper aims to investigate the empirical relationship between financial risk tolerance and risk capacity concerning investment strategies. The study intends to measure the degree of risk an investor is willing to take and their financial ability to bear the risk. The research will use a quantitative research design to collect primary data from a sample of investors through surveys. The findings of this study may provide insights into the factors that influence investors' risk-taking behaviour and how financial institutions can tailor investment products to cater to individuals with different risk profiles. In essence, this paper sheds light on how factors like age, income, and marital status can influence an investor's risk tolerance. 
Ultimately, this research on the connection between demographics and risk tolerance and risk capacity contributes to a more comprehensive understanding of investor behaviour. This knowledge empowers both individuals and financial institutions to navigate the investment landscape more effectively.
 

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