Next Article in Journal
Intervention Strategies on the Wastewater Treatment Behavior of Swine Farmers: An Extended Model of the Theory of Planned Behavior
Next Article in Special Issue
Perception and Drivers of Financial Constraints for the Sustainable Development
Previous Article in Journal
Sustainability Governance Mechanisms in Supply Chains: An Application in the Retail Sector
Previous Article in Special Issue
Human Capital, Social Capital, and Farmers’ Credit Availability in China: Based on the Analysis of the Ordered Probit and PSM Models
Open AccessArticle

Risk-Intolerant but Risk-Taking—Towards a Better Understanding of Inconsistent Survey Responses of the Euro Area Households

1
Department of Finance and Financial Policy, Cracow University of Economics, 31-510 Cracow, Poland
2
Department of Statistics, Cracow University of Economics, 31-510 Cracow, Poland
*
Author to whom correspondence should be addressed.
Sustainability 2020, 12(17), 6912; https://doi.org/10.3390/su12176912
Received: 30 June 2020 / Revised: 1 August 2020 / Accepted: 16 August 2020 / Published: 25 August 2020
(This article belongs to the Special Issue Bank Management, Finance and Sustainability)
The sustainable development of the EU internal market for retail financial services is based on the rules of ‘suitability’, ‘know your client’, and ‘know your product’. The rules ensure that financial institutions (including banks) offer retail clients only products and services that are adequate to their purposes and preferences, including risk tolerance. Our study, however, concerns households for which the above rules are not valid, since they declare risk aversion and possess risky assets. According to the European Union Markets in Financial Instruments Directive and Regulation (MiFID II and MiFIR), the inconsistent information they provide within survey questions should classify them to more compound suitability assessment procedures. In the study, we use nationally representative data for 16 euro area countries from the second wave of the Eurosystem Household Finance and Consumption Survey. Using logit regression, we identify sets of socio-demographic and socio-economic characteristics conducive to the possession of risky assets by risk-averse households in individual countries. To assess their similarity, we use the hierarchical taxonomic method with Ward’s formula. The results of the study showed that risky assets were primarily possessed by risk-averse households that were characterised by high income, including from self-employment, and reference persons having a university degree and at least 55 years of age. The significance of their other characteristics was mainly shaped at the national level. The clear similarity of sets of the characteristics was confirmed only for a few pairs of countries. The information inconsistency that may result from erroneous self-assessments of being risk-averse was recognised in all countries and most often concerned high-income households with reference persons being males with a university degree. In 11 countries, the reason for this inconsistency could also be the inadequacy of assets held, also among senior households. The results provide insights for practitioners and policy. Identification of households providing inconsistent information to financial institutions, with the recognition of its reasons based on easily verifiable characteristics, may prove helpful in suitability assessments. The results confirming the similarity of household profiles requiring special attention between countries may be useful for entities operating cross-border. Due to the collection of information on risk aversion based on the single question self-classification method, conclusions regarding the restrictions of its use should also be considered relevant. In turn, policy implications may relate to consumer protection, since significant fractions of risk-averse households indeed participate in risky assets. Moreover, in selected countries, the risk-averse senior households were recognised as susceptible to making wrong investment decisions. View Full-Text
Keywords: risk tolerance; risk aversion; risk-taking; MiFID II; MiFIR; suitability assessment; households; risky financial assets; financial institutions; financial advisory; portfolio management risk tolerance; risk aversion; risk-taking; MiFID II; MiFIR; suitability assessment; households; risky financial assets; financial institutions; financial advisory; portfolio management
Show Figures

Figure 1

MDPI and ACS Style

Kochaniak, K.; Ulman, P. Risk-Intolerant but Risk-Taking—Towards a Better Understanding of Inconsistent Survey Responses of the Euro Area Households. Sustainability 2020, 12, 6912.

AMA Style

Kochaniak K, Ulman P. Risk-Intolerant but Risk-Taking—Towards a Better Understanding of Inconsistent Survey Responses of the Euro Area Households. Sustainability. 2020; 12(17):6912.

Chicago/Turabian Style

Kochaniak, Katarzyna; Ulman, Paweł. 2020. "Risk-Intolerant but Risk-Taking—Towards a Better Understanding of Inconsistent Survey Responses of the Euro Area Households" Sustainability 12, no. 17: 6912.

Find Other Styles
Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Article Access Map by Country/Region

1
Search more from Scilit
 
Search
Back to TopTop