Risk tolerance : comparison between Maltese and Gozitan investor’s perceptions when investing in financial instruments issued in Malta

Abstract

The scope of this dissertation is to analyse shares issued in Malta (such as HSBC and Farsons shares) as well bond issued by the government (i.e. Malta government bonds) and identify differences in perceptions and risk tolerance amongst Maltese and Gozitan investors. Also, through such analysis one can identify any significant demographic characteristics that might affect the level of financial risk tolerance of a typical Maltese or perhaps Gozitan investor while gaining a wider picture of the different types of risks and potential rewards that retail investors face. Shares and bonds have always been a quite common investment amongst the Maltese and Gozitans and this dissertation will bring to the frontage the reasons for this. The literature review tackled topics, which are summarised into three main areas that focus on financial risk tolerance, investor attitudes towards risk and characteristics of bonds and shares. Studies on financial risk tolerance and investment outlined by various academics where also considered in such chapter. The literature examined shows that financial risk tolerance is a complex area affected by numerous interrelated factors. Mixed method research approach was adopted. Three case studies were selected in order to obtain responses from bonds and equity investors through the use of questionnaires. Case study 1 and 2 consisted of bank branches located in Gozo and Malta. Questionnaires were handed out to such banks and in turn such banks subsequently passed on these questionnaires to their clients. Case study 3 consisted of a face-to-face approach where questionnaires were distributed on a face-to face basis. A cross-case analysis approach in addition to the framework adopted by Miles and Huberman (1994) was used to analyse the data. From this study, it emerged that Maltese investors are more willing to take risks when investing when compared to Gozitan investors. On the other hand, Gozitan investors prefer more to engage in safer financial investments. It also emerged that Gozitan and Maltese bond investors perceive such investments as low risk investments. Conversely, when it comes to share investments Gozitan equity investors perceive such investments as high risk investments whereas Maltese equity investors perceive such investments as medium risk investments.