The risk attitude of the Maltese retail investor, and how it has changed in the past 10 years

Abstract

It has now been 10 years since the global financial crisis of 2008, which heavily impacted every single industry around the globe. The investment industry was no exception. The almost overnight collapse of otherwise extremely reputable firms such as the investment banks Bear Stearns and Lehman Brothers shattered public confidence worldwide and were a large part of what caused the most recent large-scale recession in history. Since then, businesses have been tirelessly working to recover, and regulators are constantly working to create and refine regulations to attempt to prevent such an event from reoccurring. The focus of this study, however, will be the investors, specifically in the Maltese market. In particular, this study will look at the risk attitude of the Maltese investors, what affects it, how it was impacted by the financial crisis, and how it has changed in the ten years since. Further relevant factors, such as the level of financial knowledge of Maltese investors and the level of dependency on their financial advisors were also taken into consideration. The results of this study showed that overall, investors who were used to taking little or moderate risk (which make up the bulk of Maltese retail investors) were further pushed towards risk aversion immediately following the crisis, but returned to normal within two years. Meanwhile, risk-seeking investors were mostly unphased by the crisis as they were expecting occasional drops in their portfolio. Over the past 10 years, Maltese investors have overall slightly increased their risk appetite with the intention of maintaining a particular level of return. Finally, their financial knowledge was found to be quite low, causing problems for advisors. To achieve these results, a qualitative approach was adopted, specifically interviews with Maltese retail investors and financial advisors which allowed the interviewer to gain a first-hand, in-depth perspective on the matter. The results are unfortunately limited by the relatively small sample size which may cause a bias towards the opinions of the interviewees, and the fact that it employed no quantitative methods of research.