Asset allocation in equity, fixed-income and cryptocurrency on the base of individual risk sentiment


Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License

The major problem of investment process is individual risk sentiment. Understanding how personal characteristics affect risk attitudes is a significant question. This paper develops the Merton risk model in the context of Modern Portfolio Theory. The statistical methods are analysis of variance (ANOVA) and Mann-Whitney statistic tests for an individual agent with an infinite continuous horizon of investment. Research in this field has produced various perplexing results. It is the first research about risk sentiment of Russian investors. The authors study individuals in Russia and factors for decision making of individual investors such as age, field of work, salary, salary stability, income, risk sentiment, savings. The individuals are of special interest for several reasons. Also, 5-years exchange traded funds (ETF) and bitcoin performance were analyzed to find potential risks. Based on statistics of risk sentiment and ETF performance, it is found that, in general, the high-risk investors have lower income and lower age.
The paper suggests that individual risk in young age often becomes more willing, but older individual investor become less risk-seeking. The authors propose the model for choosing optimal asset allocation of exchange-traded funds.

view full abstract hide full abstract
    • Table 1. Points for each answer and level of risk
    • Table 2. The share of each answer of individual investors in Russia
    • Table 3. ANOVA data summary
    • Table 4. Mann-Whitney U-test for age factor
    • Table 5. Asset allocation for each risk profile
    • Table 6. Mann-Whitney U-test for investment returns factor