Determinants of Financial Risk Tolerance: An Analysis of Psychological Factors

Round 1

Reviewer 1 Report

1. Can you re-align your topic, introduction and problem statement with your population and sample? Since the author is using students as a unit of analysis, the generalization in this study also refers to Malaysian citizens.

2. Can the author re-work on paragraph 5 on page 3 since the author did discuss some of the findings of this study in the introduction section?

3. Can the authors provide a credible and latest citation that can back up for this line?

"Thus, for an emerging market like Malaysia, where heterogeneity of individuals is relatively high and wealth inequality is still at large, the study of financial risk tolerance has become more relevant than ever before."

4. Please indicate clearly your unit of analysis.

5. Can the authors identify the citation or resources that indicate the value of the minimum requirement for this statement?

"The results of the descriptive statistics show that the data achieved minimum requirements for further statistical analysis"

6. Please re-check the suitability of this statement particularly the word "not very strong"

However, findings show the correlations between these attributes are not very strong. 

7. Please rework these two lines to ensure they really reflect the result of this finding in this study. 

"The findings of this study can thus be used to customize investment portfolios catered to different ethnic groups in Malaysia. All in all, theoretical insights into risk assessment measures, financial planning process and, investment management models can be obtained from the current study"

Author Response

Reviewer 1:

1. Can you re-align your topic, introduction and problem statement with your population and sample? Since the author is using students as a unit of analysis, the generalization in this study also refers to Malaysian citizens.

Author response: Thank you for your insightful suggestions to improve the manuscript. Since our sample was university students, hence, we revised the paper mentioning university students instead of Malaysian citizens. 

2. Can the author re-work on paragraph 5 on page 3 since the author did discuss some of the findings of this study in the introduction section?

Author response: Thank you for the suggestions. We presented paragraph 5 to highlight the contribution of this study. However, we revised and shorten it.

3. Can the authors provide a credible and latest citation that can back up for this line?

"Thus, for an emerging market like Malaysia, where heterogeneity of individuals is relatively high and wealth inequality is still at large, the study of financial risk tolerance has become more relevant than ever before."

Author response: Thank you for your suggestions. We have added relevant references (Please see page 3).

4. Please indicate clearly your unit of analysis.

Author response: Thank you for the comments. We revised it and made it clear. Please see paragraph one, page 3, highlighted in yellow color.

5. Can the authors identify the citation or resources that indicate the value of the minimum requirement for this statement?

"The results of the descriptive statistics show that the data achieved minimum requirements for further statistical analysis"

Author response: Thank you very much for pointing it out. The sentence was not clear and the position was not appropriate. We revised the sentence (The results for skewness values, Cronbach α scores, exploratory factor analysis (EFA), confirmatory factor analysis (CFA), and correlation values show that the data achieved minimum requirements for further statistical analysis.) and put is page 6.

6. Please re-check the suitability of this statement particularly the word "not very strong"

However, findings show the correlations between these attributes are not very strong. 

Author response: Thank you for pointing it out. We have revised is as “However, findings show the correlations between these attributes are weak” (see last paragraph, page 5 ).

7. Please rework these two lines to ensure they really reflect the result of this finding in this study. 

"The findings of this study can thus be used to customize investment portfolios catered to different ethnic groups in Malaysia. All in all, theoretical insights into risk assessment measures, financial planning process and, investment management models can be obtained from the current study"

Author response: Thank you for your suggestions. We revised it. Please see page 9.

Author Response File: Author Response.docx

Reviewer 2 Report

Comments on JRFM 2120650

The paper reports the results of a correlational analysis testing the link between Financial Risk Tolerance and seven potentially “related dispositions” such as religiosity, overconfidence, and trust. The sample consists of 1204 Malaysian students from six public universities, split between three religions similarly to the composition of the Malaysian population. The authors apply CFA to analyze the correlation between the eight constructs and argue that the study of related dispositions can contribute to the design, research and implementation of FRT measures.  

The study reported in the note is interesting and some of the results are illuminating, but the current version of the paper does not explain the methods of the survey (the exact items used to measure each construct) and the analysis (the outputs of the CFA and how these are used in the analysis) properly. The main message is interesting and the writing is generally good, but an additional careful round of editing is also essential.

With careful thorough revision this can be a good short paper for JRFM

My specific comments follow:

Section 1 

-The writing is generally good but sometimes slips; e.g., “Earlier studies, recognizing the risk and surveying propensities of individuals to take risks can be attributed vastly to the works of…”

-The longer paragraph on page 2 is disorganized: discussing demographic effects, moving to personality attributes and returning to ethnicity and race. At the very least, move the discussion starting with “Inclusion of attributes such as ethnic groups…” to a new paragraph.

-Since this is a correlational study, terms such as “significantly influenced” should be avoided (e.g., page 2)

Section 2

-Gauzed?

-Your response rate is huge. did you incentivize the participants or announced some prizes?

-The presentation of main constructs in 2.2 is too brief. You say you “adapt” your items from preceding studies, so the items – most importantly those that are adapted – must be fully presented. How do you measure FRT? Do Brooks et al (2008) use exactly the same scale? “Propensity for social interaction towards financial risk tolerance” (writing)? Propensity to regret and propensity to attribute success to luck are not common constructs in economics/finance, so the items must be presented.  To conclude, you must provide an appendix table – at the end of the paper – listing all the items of the survey and starring those 35 that sustain the factor analysis

Section 3

-Give a reference for the Tenth Malaysian plan

-The constructs abbreviations as presented below table 4 can be introduced in Table 2 for convenience and similarly applied in the earlier discussion of the constructs in section 2.2

-I am lost regarding how exactly you apply CFA to your variables. I am far from an expert on the method, but the same probably goes for JRFM diverse audience, so the method should be clearly explained. I cannot see where the output of the CFA is applied in Tables 4 and 5.

-The results as presented in the abstract go the opposite way to those presented in Section 3 (the correlations are positive not negative)

-How do you define the propensities for Table 6? Are the table 6 variables similar or different from those used in table 5? Can you definitely interpret the regression results in terms such as “Malays are 10% more financial risk tolerant”. Try to decrease the use of abbreviations in the discussion of results. 

Author Response

Reviewer 2:

The paper reports the results of a correlational analysis testing the link between Financial Risk Tolerance and seven potentially “related dispositions” such as religiosity, overconfidence, and trust. The sample consists of 1204 Malaysian students from six public universities, split between three religions similarly to the composition of the Malaysian population. The authors apply CFA to analyze the correlation between the eight constructs and argue that the study of related dispositions can contribute to the design, research and implementation of FRT measures.  

The study reported in the note is interesting and some of the results are illuminating, but the current version of the paper does not explain the methods of the survey (the exact items used to measure each construct) and the analysis (the outputs of the CFA and how these are used in the analysis) properly. The main message is interesting and the writing is generally good, but an additional careful round of editing is also essential.

With careful thorough revision, this can be a good short paper for JRFM

Thank you very much for your kind words and suggestions to improve the manuscript. We appreciate it.  We have added the survey method on page 3 (A quota sampling method was used to collect data of the targeted population. The lecturers and professors of the selected universities were contacted to conduct the survey in their respective classes to reach a bigger number of students.) and constructs with the items in Appendix (Table A3).

We conducted EFA and CFA (Output shown in Appendix Table A1 &A2) just to observe whether the items of the constructs load together and their loadings. Since to fulfil the research objective, we only ran correlation, mean difference and simple OLS (not SEM), hence we didn’t explain the output of CFA in detail.

My specific comments follow:

Section 1 

-The writing is generally good but sometimes slips; e.g., “Earlier studies, recognizing the risk and surveying propensities of individuals to take risks can be attributed vastly to the works of…”

-The longer paragraph on page 2 is disorganized: discussing demographic effects, moving to personality attributes and returning to ethnicity and race. At the very least, move the discussion starting with “Inclusion of attributes such as ethnic groups…” to a new paragraph.

Author response: Thank you for the suggestion. We moved the discussion starting with “Inclusion of attributes such as ethnic groups…” to a new paragraph.

-Since this is a correlational study, terms such as “significantly influenced” should be avoided (e.g., page 2)

Author response: Thank you for the suggestion. We revised accordingly.

Section 2

-Gauzed?

-Your response rate is huge. did you incentivize the participants or announced some prizes?

Author response: Thank you for pointing out the word “Gauzed”. We revised the sentence. We contacted the lecturers and professors of the selected universities to conduct the survey in their respective classes to reach a bigger number of students and gave them a pen as a token of appreciation.

-The presentation of main constructs in 2.2 is too brief. You say you “adapt” your items from preceding studies, so the items – most importantly those that are adapted – must be fully presented. How do you measure FRT? Do Brooks et al (2008) use exactly the same scale? “Propensity for social interaction towards financial risk tolerance” (writing)? Propensity to regret and propensity to attribute success to luck are not common constructs in economics/finance, so the items must be presented.  To conclude, you must provide an appendix table – at the end of the paper – listing all the items of the survey and starring those 35 that sustain the factor analysis

Author response: Thank you for the suggestion. We provided a table in the appendix containing all constructs with the items (Appendix Table A3).

Section 3

-Give a reference for the Tenth Malaysian plan

Author response: Thank you for the suggestion. The reference is added.

-The constructs abbreviations as presented below table 4 can be introduced in Table 2 for convenience and similarly applied in the earlier discussion of the constructs in section 2.2

Author response: Thank you for the suggestion. The constructs abbreviations are added below Table 2.

-I am lost regarding how exactly you apply CFA to your variables. I am far from an expert on the method, but the same probably goes for JRFM diverse audience, so the method should be clearly explained. I cannot see where the output of the CFA is applied in Tables 4 and 5.

Author response: We conducted EFA and CFA (Output shown in Appendix Table A1 &A2) just to observe whether the items of the constructs load together and their loadings. Since to fulfil the research objective, we only ran correlation, mean difference and simple OLS (not SEM), hence we didn’t explain the output of CFA in detail.

-The results as presented in the abstract go the opposite way to those presented in Section 3 (the correlations are positive not negative)

Author response: Thank you very much for pointing it out. We have revised the presentation in the abstract and highlighted it in yellow colour.

-How do you define the propensities for Table 6? Are the table 6 variables similar or different from those used in table 5? Can you definitely interpret the regression results in terms such as “Malays are 10% more financial risk tolerant”. Try to decrease the use of abbreviations in the discussion of results. 

Author response: Thank you for the comment. The propensities used in Table 5 and 6 are the same but the analysis is a bit different, as indicated by the title of the tables. However, as mentioned in the discussion, some of the results from the Table 5 and 6 compliment each other. For example, findings in Table 6 also reflect the impact of demographic attributes, namely age, gender and race on individual propensities.

Author Response File: Author Response.docx