Risk tolerance : a comparison between Maltese and foreign investors’ perceptions when investing in financial instruments

Abstract

The purpose of this study is to evaluate and compare the financial risk tolerance of Maltese investors with foreign investors when investing in financial instruments. The study identifies ways of how Maltese investors react to certain financial situations and compares them to those of foreign investors. It explores any significant demographic characteristics that could potentially influence the level of financial risk tolerance of these two groups. The Literature Review discusses several topics, including types of investors, definition of financial risk tolerance, different categories of financial instruments, characteristics that affect decision-making. It also contains a section on past empirical studies. A broad overview of previous studies related to this area shows that this topic is highly important to potential and active investors. The literature indicates that financial risk tolerance does not depend only on wealth, but also on a wide range of characteristics like age, income, financial literacy, cultural background, and inner attitude towards change. Data on Maltese investors for this study was collected through questionnaires distributed on an online platform and face-to-face. Secondary data on foreign investor was obtained from a questionnaire conducted by Cooper, et al. (2014). Following this research study, one can conclude that foreign investors’ attitude towards financial risk is similar to that of Maltese investors. This outcome was evident in various responses by both population groups. Also, the majority of both groups of respondents attested that in the face of financial risk, they classified themselves as average risk takers.