The Effect of Financial Literacy on Investors' Financial Risk Tolerance

Abstract

This paper aims to examine the effect of financial literacy on investors' financial risk tolerance among investors of the Tehran Stock Exchange. The research sample selected by available methods includes 384 investors of the Tehran Stock Exchange in the first half of 2020. The standard questionnaire of financial literacy and financial risk tolerance of Yaghoubnejad et al. (2011) and Carina & Lisa (2015) has been used to measure the research variables and test hypotheses. The content and face validity methods and factor analysis were used to confirm the validity of the questionnaire, and its reliability was evaluated using Cronbach's alpha coefficient. Structural equation and PLS methods have been used to test the research hypotheses. The research hypotheses test results showed that earning money literacy, investment literacy, spending and borrowing literacy and financial risk literacy as components of financial literacy has a positive and significant effect on financial risk tolerance. But savings literacy does not affect financial risk tolerance.

Keywords

• financial literacy
• financial risk tolerance
• investors