Risk appetite and hedging strategies: the impact of age cohorts in financial markets

Abstract

The financial instruments are subject to market risk, and the degree of risk may differ. Numerous demographic and behavioral factors determine the willingness of retail investors to face market risk. This work examines the direct effect of investors’ risk appetite on their risk mitigation strategies and the indirect effect of investors’ risk appetite on hedging strategies through financial intermediaries. In both situations, the age cohort is fixed as a moderator. The data consists of 612 active stock market investors across India. The analysis has established partial mediation in the indirect path. The investors aged 26–40 appear to be risk-oriented, whereas those above 60 reported being risk-averse. These results show that risk appetite decreases with age, and people prefer stable returns to volatility as their age progresses. This research points to policymakers and intermediaries to design portfolio management services that fit the investors’ age group.

Keywords

• Risk appetite
• financial intermediation
• hedging strategies
• mediated moderated analysis
• age cohorts
• Gazi Salah Uddin, Linköping University, Linkoping, Sweden