Effect Of Gender And Family Income On Equity Finance Essay

Purpose- The intent of this paper is to prove whether the demographic properties of an person like gender and household income affect the investing determinations of the person and whether the hazard tolerance of the person, as determined by the demographics of the person, acts as a go-between in this relationship.

Design/methodology/approach- A questionnaire was floated on the cyberspace utilizing e-mail and societal networking web sites. Most of the respondents were pupils prosecuting a PGDBM. Information on their gender and household income was collected. Hazard Tolerance was measured through a questionnaire specially designed for that intent. Risk associated with the investing determinations of persons was calculated by inquiring respondents to take a portfolio from 30 stocks spread across sectors and holding changing hazard degrees.


Research limitations/implications- The pick of sample was on the footing of convenience and consisted largely pupils prosecuting PGDBM from XLRI Jamshedpur. A big proportion of the respondents had no anterior puting experience and female respondents were non adequately represented in the population. The capital market conditions in India may hold influenced responses excessively. A more diversified sample covering different demographic cross-sections may hold yielded more error-proof consequences.

Practical implications- Financial Service houses like common financess, wealth direction practicians and insurance companies can use the consequences of this research for aiming possible clients and launch new merchandises. Investors themselves may utilize these consequences to go cognizant of their prejudices and invest consequently in the hereafter.

Originality/value- The survey was conducted with the focal point on equity markets merely which hasni??t been done in old similar researches. The division of the equity market into big, mid and little cap markets to analyze single relationships for them is besides a alone characteristic of this survey.

Keywords- Risk Tolerance, Investment determination, Gender, Family Income

Paper type- Research paper


The consequence of an individuali??s gender and household income have been considered to be determiners of their hazard tolerance or attitude towards hazard, which in bend has been hypothesized to impact the nature of their investing determinations. Embrey and Fox in their paper i??Gender Differences in Investment Decision-Making Processi?? ( 2002 ) propose that adult females and work forces are influenced by different factors to keep more hazardous assets. Womans have been shown to be less hazard averse than work forces ( Eckel and Grossman,2003 ) . Individual investing picks have been linked to demographic properties of the investors ( Warren et al. , 1990 and Rajarajan, 2002 ) .

The dependance of investing determination on hazard tolerance of the investor has been explored and investigated widely. The preparation of Risk Tolerance Questionnaires to measure the degree of an individuali??s hazard tolerance deserves reference in this respect. James E. Corter and Yuh-Jia Cheni??s work i??Do Investment Risk Tolerance Attitudes predict portfolio hazard? i?? concluded that investors with higher tolerance of hazard may really hold higher-risk portfolios.

The variableness of returns on an individuali??s portfolio, captured through the factor i??betai?? is widely regarded as a step of the peril of a portfolio. This step has been used in this survey to estimate the peril of an investori??s portfolio. Besides this step, the inclination of an investor to administer his portfolio between Large Cap, Mid Cap and Small Cap stocks when stocks of all three sorts are available for portfolio formation has been used as another index to mensurate the individualsi?? hazard tolerance as displayed in his/her investing determinations. Rather than look at the persons pick of including bonds, stocks, existent estate and other avenues of investing to quicken his hazard appetency suitably, it has been felt that given a scope of lone stocks supplying adequate option to take from in order to be able to organize a portfolio with changing grades of hazards an every bit effectual tool to reflect the investorsi?? investing determinations on a whole.

The present attempts to set up how the gender and household income of persons play a function in finding their hazard tolerance which, in bend, is reflected in their investing determination as is captured in the portfolio they fabricate from a sufficiently high scope of stocks crossing a broad continuum of beta every bit good as belonging to all three classs viz. Large Cap, Mid Cap and Small Cap.

Theoretical Background and Hypotheses

Gender on Risk Appetite

Surveies have focused on the differences in hazard tolerance between the genders. Womans are considered to be more hazard averse in state of affairss similar to chance ( Hershey and Schoemaker, 1980 ) . Women tend to take less hazardous stakes in experimental market conditions which involve lotteries and auctions ( Harlow and Keith, 1990 ) . Another survey ( Hudgen and Fatkin, 1985 ) suggests that both genders are every bit successful in decision-making under conditions of hazard.

Another survey ( Powell and Ansic, 1997 ) said that adult females are lesser hazard seeking than their work forces irrespective of framing and acquaintance, ambiguity or costs. Brynes and Miller in 1999 investigated the relation between gender and hazard and came to the decision that females take less hazard than males. In instance of married twosomes, married womans tend to take lesser hazards than hubbies ( Hanna and Lindamood, 2005 ) .

Family Income on Risk Appetite

Income besides affects the hazard tolerance degrees of individuals. Relative hazard antipathy of individuals reduces as the income degree rises and for high income persons, it reduces significantly ( Riley and Chow, 1992 ) . Riley and Chow besides noted that hazard antipathy reduces with addition in instruction but speculate that instruction, wealth and income are extremely correlated, so the relation may be due to wealth instead than instruction. Furthermore, in the early version of Bernoullii??s expected public-service corporation theory, the differences in hazard tolerance are attributed to differences in wealth of investors, with more hazard being taken by wealthier persons.

Hazard Tolerance on Portfolio Risk

The hazard tolerance degree of an single affects the sort of portfolio he invests in. A survey ( Corter and Chen, 2005 ) used a new instrument to measure investing hazard tolerance called the Risk Tolerance Questionnaire ( RTQ ) . It concluded that investors who have a high hazard tolerance mark have portfolios of high hazard. The modern portfolio theory says that optimum allotment of assets in an investing portfolio must take attention of the trade-off bing between expected hazard and return and believes that investors have certain hazard penchants that influence the optimisation ( Yook and Everett, 2003 ) . Langer ( 1975 ) concludes in his survey that self-reported hazard tolerance degree best explains the differences in both portfolio variegation and turnover across assorted investors.

Gender on Portfolio Risk

Surveies have investigated the relation between gender and hazardous investing determinations. Womans are found to take less hazard than work forces while doing the most recent and largest determination for common financess investings ( Dwyer and others, 2002 ) . The survey besides found that the consequence of gender on hazard taking becomes significantly weak when investor cognition and investings are controlled in arrested development. This result shows that higher hazard antipathy among adult females can be well, but non to the full, explained by cognition differences. Bernasek and others in 1998 found that females show greater hazard antipathy than males while apportioning wealth in part pension assets. Females have significantly lower assurance degree than males while puting after other relevant variables are controlled ( Estes and Hosseini, 2001 ) . Another survey investigated that females are more hazard averse than their male opposite numbers in gambles, investing frames with a possibility of loss and gamble frame without any loss ( Eckel and Grossman, 2003 ) . A survey by Schubert in 2006 expressions at determinations trees to place whether gender differences in hazard analysis and direction really be. Another survey by Helga et Al. in 2006 attempts to analyze whether the perceptual experience that adult females are more hazard averse than work forces in affairs of fiscal determination devising is true.

Family Income on Portfolio Risk

Individual picks of investings like stocks, bonds, existent estate etc. depend on life style and demographic properties which include income ( Warren et al. , 1990 and Rajarajan, 2000 ) . The investors look at wagess subject to their ain behaviour ( Rajarajan, 2002 ) .

Gender, Income and Risk Tolerance on Portfolio Risk

There have besides been surveies which investigate the effects of demographics like gender, income etc. and personality type on investing picks. A survey by Meenu Verma in 2008, conducted though a study in Jaipur, says that demographic variables like gender, age, income, instruction, business and personality types such as conservative, average conservative, moderate, average aggressive and aggressive, based on the hazard taking ability of the single affect the picks of investings made by persons. The survey investigates the separate consequence of demographics and personality on portfolio of investings every bit good as their combined consequence on the investing determinations.

Consequence of Investment Experience ( chairing variable ) on Risk Tolerance & A ; Portfolio Risk

The figure of old ages a individual has been puting in the yesteryear besides affects his hazard tolerance and the sort of investing portfolio he chooses. Peoples with higher investing experience were more risk-tolerant and chose portfolios with higher hazard than those who were less experient ( Corter and Chen, 2005 ) .

There are certain spreads in the existing literature. Existing literature does non incorporate the effects of the demographic factors and risk-taking ability/personality type on the sort of stocks an person would wish to keep as portion of his equity portfolio. Besides there has been no separate analysis for Large Cap, Mid Cap and Small Cap coi??s done in the yesteryear

The undermentioned hypothesis are to be validated: –

? H1: Gender has a important consequence on Portfolio Risk, which is mediated by Risk Tolerance

? H2: Gender has a important consequence on Portfolio Risk of Large Cap Stocks, which is mediated by Risk Tolerance

? H3: Gender has a important consequence on Portfolio Risk of Medium Cap Stocks, which is mediated by Risk Tolerance

? H4: Gender has a important consequence on Portfolio Risk of Small Cap Stocks, which is mediated by Risk Tolerance

? H5: Family Income is positively related with Portfolio Risk, which is mediated by Risk Tolerance

? H6: Family Income is positively related with Portfolio Risk of Large Cap Stocks, which is mediated by Risk Tolerance

? H7: Family Income is positively related with Portfolio Risk of Medium Cap Stocks, which is mediated by Risk Tolerance

? H8: Family Income is positively related with Portfolio Risk of Small Cap Stocks, which is mediated by Risk Tolerance



The Survey was floated on the cyberspace and respondents were contacted utilizing e-mail and societal networking web sites. A sum of around 250 people were contacted out of which 138 chose to take part. The questionnaire didni??t contain any identifier. Most of the respondents were prosecuting PGDBM from XLRI Jamshedpur and had enough cognition on the topic of finance. Besides, the age group of the sample was 20-25 old ages.


The undermentioned concepts and variables were used in our analysis

Fig 1: Theoretical Model

Gender: The respondents were merely asked to unwrap their gender in the questionnaire

Family Income: The respondents were asked to stipulate the scope in which their entire household income belonged, the scopes given to them were below 5 hundred thousand, between 5-10 hundred thousand, between 10-15 hundred thousand, between 15-20 hundred thousand and above 20 hundred thousand. Since the respondents in the last two classs were low compared to others, these two scopes were collapsed to organize a individual scope of above 15 hundred thousand for the intent of analysis.

Investing Experience: The respondents were asked to advert the figure of old ages since they have been puting. They were once more given five scopes – 0-1, 1-2, 2-3, 3-5 and over 5 old ages. Again since the most of the responses were in the 0-1 scope, remainder of them were collapsed into a individual scope of over 1 twelvemonth of experience.

Hazard Tolerance: Hazard tolerance of a respondent was measured through a criterion Risk Tolerance Questionnaire ( RTQ ) developed by a fiscal consultative house i??Partnervesti?? . The questionnaire has 10 inquiries and gives a mark between 8 and 34. Higher the mark of a respondent in this questionnaire, greater his hazard tolerance or hazard taking ability.

Equity Portfolio Hazard: In order to capture the hazard associated with an individuali??s equity portfolio, we selected 30 stocks and asked our respondents to apportion money to those stocks harmonizing to their investment wonts. Respondents could apportion between 0, 5000, 10000, 20000, 50000 or 1 lakh rupees to every stock based on their pick. They were provided with informations on each stocki??s Market cap, beta, Sector, P/E ( Price/ Earnings ratio ) and P/BV ( Price/Book Value ratio ) , in order to assist them do an informed determination.

Harmonizing to the Capital Asset Pricing Model ( CAPM ) , the hazard of a portfolio can be captured by the beta of the portfolio which measures its systematic hazard i.e. the hazard which is due to industry or economic system related factors ( Ardalan, 2000 and Theobald, 1979 ) . The theoretical account further argues that an investor can cut down his/her unsystematic hazard i.e. the hazard associated to a stock because of company specific factors, by puting in a portfolio of stocks such that positive intelligence for some stocks offset the negative intelligence on others. Since the investor can cut down this unsystematic hazard to about nil merely by puting in a portfolio of stocks, he should non demand any excess return for taking this company or stock specific hazard.

Birdliming Guan et Al in their survey reexamined the research that beta as specified by the CAPM Model explains transverse sectional fluctuation in stock returns i.e. hazard associated with a stock by using more strict statistical methods than used in the yesteryear. The findings show that beta is a important variable to mensurate the hazard of securities.

In researches done earlier ( Corter and Chen,2006 ) , Portfolio hazard is captured by first delegating a weight proportional to the peril of an plus category, so mensurating the portfolio hazard by multiplying this hazard weighting of each category by the per centum of assets invested by the person in that category and summing over all the categories to acquire,

PR = ? ripi


PR = Overall portfolio hazard mark,

Rhode Island = Risk weighting of the plus category

pi = Percentage of the individuali??s assets invested in that plus category.

A similar step to hit single portfolio hazard was besides used by Morse ( 1998 ) in the yesteryear. Since, in this research hazard of lone equity portfolio is considered which is measured by beta, we have used the same expression for ciphering the hazard associated with an individuali??s equity portfolio by replacing by replacing Rhode Island with beta ( i?? ) .

PR = ? i??pi

Stockss were selected based on quota sampling in which 10 stocks each were selected in three different scopes of market capitalizations-

1. Large Caps: Ranging from a Market Cap of 40,000 crore to more than 3 lakh crore rupees

2. Mid Caps: Ranging from a Market cap of 3000 crore rupees to 25000 crore rupees

3. Small Caps: Ranging from Market cap of 100 crore rupees to 2500 crore rupees

Within each scope of Market Capitalization, a upper limit of 1 company was selected from a sector. The choice of sectors and the company within a sector was done at discretion maintaining in head, the assortment in beta and the general consciousness about the company. Every attempt was made to give as broad scope of stocks as possible to the respondent. This was done besides to guarantee that we get a assortment of portfolio betas and are able to capture hazard of an individuali??s equity portfolio efficaciously. The stocks selected for the intent are as follows:

Market Cap Beta Sector P/E P/BV

Large Caps

Reliance Industries 335607.67 1.04 Oil & A ; Refinery 22.31 2.93

Tata Steel 53889.38 1.72 Iron & A ; Steel 12.41 2.21

Maruti 42284.88 0.81 Auto 20.29 4.52

Infosys 153283.03 0.55 IT 25.8 8.61

HUL 48571.76 0.38 FMCG 24.11 23.54

SBI 129864.75 1.17 Banking 12.93 2.24

Bharti Airtel 113556.92 0.74 Telecom 12.12 4.13

DLF 52677.13 1.54 Real Estate 135.52 4.26

BHEL 116628.14 0.94 Capital Goods 31.11 9.01

NTPC 164991.74 0.68 Power 18.7 2.8

Mid Caps

Adani Power 23936.79 0.31 Power 0 9.11

Punj Llyod 5878.65 1.89 Engineering 20.42 2.25

Aban Offshore 5415.81 1.95 Oil & A ; Gas 18.85 5.88

Godrej Industries 4875.54 2.14 FMCG 71.73 4.81

Tata Communications 8146.73 1.23 Telecom 13.01 1.2

IFCI 3840.44 1.79 NBFC 6.73 1.37

Era Infra 3885.16 1.22 Infrastructure 11.96 4.44

HDIL 10510.16 1.74 Real Estate 21.86 2.32

ING Vyasya Bank 3195.91 0.82 Banking 14.31 1.98

Suzlon Energy 11776.68 1.9 Renewable Energy 0 1.81

Small Caps

Amtek Auto 2661.32 1.32 Auto 17.7 1.05

ICSA India 625.67 1.4 Power/Software 4.58 1.05

Bartronics 476.4 1.09 Assorted 10.45 1.54

Sasken Communications 496.95 1.35 Software 9.25 1.17

Indiabulls Securities 798.27 1.74 NBFC 0 2.79

Lakshmi Vilas Bank 735.59 0.54 Banking 10.3 1.03

Koutons Retail 1039.2 0.21 Retail 11.93 2.44

Jyothy Labs 1268.87 0.39 FMCG 0 3.6

Kolte- Patil Developers 431 1.16 Real Estate 51.91 0.67

Balaji Telefilms 332.25 1.3 Media 0 0.85

Beginning: hypertext transfer protocol: //www.moneycontrol.com

In the questionnaire, the place of these stocks was randomized so that the respondents can non place the classs in which these stocks were divided and can give an indifferent response. It was all the more of import because a big part of our sample population was a pupil of finance.


Restrictions of Research:

The research had a figure of restrictions which affected the consequences of the research. The convenient sample population in the research consisted chiefly of MBA pupils most of whom belonged to XLRI, Jamshedpur. A big population of the sample population had no anterior experience in puting and their cognition of different fiscal parametric quantities as Beta, P/E Ratio, P/BV Ratio was derived from the theoretical classs undertaken. It is non unlikely that the positions of the teachers of these classs sing stocks and the

Capital market could hold influenced the respondents which in bend had influenced the consequences of the survey. The sample population constituted chiefly of persons belonging to the age group 21-30 and most of them were MBA pupils. Thus the survey did non capture the declared relationships for investors crossing across different age groups and holding different instruction degrees.

It was observed that on some occasions the members of the sample population filled up the study within a really short period of clip. This indicated that the sample responses might hold lacked proper idea and prudence which was required. It can be stated that in world an investor would make a elaborate analysis before really apportioning in an equity portfolio.

The survey was transverse sectional in nature. However it could hold been influenced by the capital market conditions of India, the state in which the survey was performed, at that point in clip. A longitudinal survey performed over a period of clip could hold been a more preferable mechanism.

Of the entire figure of respondents about merely 25 % of the respondents were female respondents. This could hold influenced the consequences and a much more balanced sample population is desirable.

Therefore the consequences of this survey may non be generalized and applicable to all investors. In future surveies a longitudinal survey on a much more diverse sample population ( in footings of fiscal cognition, puting history, gender, age, instruction degree ) is desirable.

Originality Value:

The research was aimed at analyzing the given relationships with the focal point as the equity market. In the yesteryear, surveies aimed to happen out the consequence of hazard leaning on puting determinations did non see merely the equity market, other investing options as existent estate,

puting in the bond market were besides taken into consideration.

Another characteristic which is the freshness of this survey is the division of the equity market into little cap, mid cap and big cap markets and analyzing the given relationships for these single markets.

Discussion and Deductions


Hazard tolerance does non move as a go-between between gender, household income and the individuali??s equity portfolio hazard

There may be some other variables act uponing the affect of these two forecaster variables on the dependant variable

Such variables can include instruction loan, hereafter disbursals, accumulated wealth etc.

Further research needs to be done after commanding the consequence of these variables.