Evidences of investors’ risk tolerance in Nairobi securities exchange: Does education or specialization matter?


  • Tobias Olweny Department of Finance and Accounting, Jomo Kenyatta University of Agriculture and Technology, Kenya.




Heuristics, Logistic regression, Risk tolerance, Specialization.


The main objective of the study is to evaluate the extent to which investors’ education level or specialization in finance or accounting determines investor risk tolerance at the Nairobi Securities Exchange using a total of 500 individual investors out of 9,32,510  investors holding CDS accounts. Data is collected through questionnaires comprising 13-item risk tolerance instrument and demographic attributes that determine individual investors’ risk tolerance. Analytical framework included ordinal logistic regression model, as well as an analysis of variance and Wolfowitz Wald test at ?=0.05. The key findings are that investor education level are significant in the determination of risk tolerance only at below the high school level with a positive impact of 1.831 log of odd for every unit increase in risk tolerance. Specialization in finance or accounting discipline also influenced investor risk tolerance at a significance level of 0.022 with a negative impact of -0.389. 


Al-Ajmi, J.Y., 2008. Risk tolerance of individual investors in an emerging market. International Research Journal of Finance and Economics, 17: 15-26.

Arrow, J. & Pratt J.W. 1965. Risk aversion in the small and in the large Econometrica, 32: 122-136.

Baker, H. K., & Haslem, J. A., 1974. The impact of investor socioeconomic characteristics on risk and return preferences. Journal of Business Research, 2(4): 469-476. http://dx.doi.org/10.1016/0148-2963(74)90032-0

Barsky, R. B., Kimball, M. S., Juster, F. T., & Shapiro, M. D., 1997. Preference parameters and behavioral heterogeneity: an experimental approach in the health and retirement survey (No. w5213). National Bureau of Economic Research.

Bartlett, J. E. II., JW Kotrlik, & CC Higgins, 2001. Organizational Research: Determining Appropriate Sample Size in Survey Research. Information Technology, Learning, and Performance Journal, 19(1).

Brennan, M. J., & Kraus, A., 1976. The geometry of separation and myopia. Journal of Financial and Quantitative Analysis, 11(02): 171-193. http://dx.doi.org/10.2307/2979048

CMA (2010) Quarterly Statistical Bulletin, Quarter Ended September 2010.Issue 5/2010 Capital Markets Authority 2010

Hallahan, T. A., Faff, R. W., & McKenzie, M. D., 2004. An empirical investigation of personal financial risk tolerance. Financial Services Review, 13(1): 57-78.

Faff, R., Mulino, D., & Chai, D., 2008. On the linkage between financial risk tolerance and risk aversion. Journal of Financial Research, 31(1); 1-23. http://dx.doi.org/10.1111/j.1475-6803.2008.00229.x

Friedman, M., & Savage, L. J., 1948. The utility analysis of choices involving risk. The Journal of Political Economy, 279-304. http://dx.doi.org/10.1086/256692

Friend, I., & Blume, M.E., 1975. The demand for risky assets. American Economic Review, 75: 900 -922.

Grable, J. E., & Lytton, R. H., 1994. Assessing financial risk tolerance: Do demographic, socioeconomic, and attitudinal factors work. Family Relations and Human Development/Family Economics and Resource Management Biennial, 3: 80-88. http://dx.doi.org/10.1023/A:1022994314982

Grable, J. E., 2000. Financial risk tolerance and additional factors that affect risk taking in everyday money matters. Journal of Business and Psychology, 14(4): 625-630.

Grable, J. E., & Joo, S., 1997. Determinants of risk preference: Implications for family and consumer science professionals. Family Economics and Resource Management Biennial, 2: 19-24.

Grable, J. E. and Lytton, 1998. Investor’s risk tolerance: testing the efficacy of demographics as differentiating and classifying factors. Association for Financial Counseling and Planning, 9(1): 61-74.

Grable, J. E., & Joo, S. H., 1999. Factors related to risk tolerance: A further examination. Consumer Interests Annual, 45: 53-58.

Grable, J. E., & Joo, S. H., 2004. Environmental and Biophysical Factors Associated with Financial Risk Tolerance. Journal of Financial Counseling and Planning, 15(1):73-82.

Grable, J., Lytton, R. H., O'neill, B., Joo, S. H., & Klock, D., 2006. Risk Tolerance, Projection Bias, Vividness, and Equity Prices. The journal of investing, 15(2): 68-74. http://dx.doi.org/10.3905/joi.2006.635632

Hanna, S. D., & Lindamood, S., 2005. Risk tolerance of married couples. Proceeding of the Academy of Financial Services, 13 (4).

Hanna, S., & Chen, P., 1997. Subjective and objective risk tolerance: Implications for optimal portfolios. Financial Counseling and Planning, 8(2): 17-26.

Irwin, C.E, 1993. Adolescence and Risk Taking: How are they Related? In J. Bell & R.W Bell (eds) Adolescent risk taking Newsbury, park C.A: Sage

Jackson, D. N., Hourany, L., & Vidmar, N. J., 1972. A four‐dimensional interpretation of risk taking1. Journal of Personality, 40(3): 483-501. http://dx.doi.org/10.1111/j.1467-6494.1972.tb00075.x

Nofsinger, J., & Baker, 2002. Investment, Prentice Hall, New Jersey.

Paun, C Radu , M, Lulian, B., 2007. Empirical evidence of risk aversion for individual Romanian capital market investors. MPRA , 6842, 22

Roszkowski, M.J., 1999. Risk tolerance and risk aversion. Financial Planning, 213-225.

Roszkowski, M.J., 1993. Risk–tolerance in financial decisions. In R.M. Crowe Hughes (Eds).Fundamentals of Financial Planning (2nd Ed.) Bryn Mawr. PA The American College.

Roszkowski, M., & Grable, J., 2005. Estimating risk tolerance: The degree of accuracy and the paramorphic representations of the estimate. Journal of Financial Counseling and Planning, 16(2).

Sekaran,U.,(2011) Research methods: A skill building approach. 4th Edition John Wiley & Sons

Schooley, D. K., & Worden, D. D., 1996. Risk aversion measures: Comparing attitudes and asset allocation. Financial services review, 5(2): 87-99. http://dx.doi.org/10.1016/S1057-0810(96)90003-7

Shaw, K. L., 1996. An empirical analysis of risk aversion and income growth. Journal of Labor Economics, 626-653. http://dx.doi.org/10.1086/209825

Shefrin, H., 2001. Behavioral corporate finance. Journal of Applied Corporate Finance, 14(3):113-126. http://dx.doi.org/10.1111/j.1745-6622.2001.tb00443.x

Sulloway, F.J, 1997. Born to rebel: Birth order, family dynamics and creative lives. Boston Pantheon.

Sung, J., & Hanna, S., 1996. Factors related to risk tolerance. Financial Counseling and Planning, 7, 11-20.

Wang, C., & Hanna, S. D., 2007. Racial/ethnic disparities in stock ownership: A decomposition analysis. Consumer Interests Annual, 53.

Wang, C., & Hanna, S. D., 2007. The risk tolerance and stock ownership of business owning households. Financial Counseling and Planning, 18(2): 3-18.

Xiao, J. J., Alhabeeb, M. J., HONG, G. S., & Haynes, G. W., 2001. Attitude toward Risk and Risk‐Taking Behavior of Business‐Owning Families. Journal of Consumer Affairs, 35(2): 307-325. http://dx.doi.org/10.1111/j.1745-6606.2001.tb00116.x

Yuen, W.,T & Chen.,C.W., 2008. Investor risk tolerance: A survey of Hong Kong. Working Paper Series. Economics Department Hong Kong University.