The determinants of financial risk tolerance and portfolio allocation : have the Covid-19 pandemic and the Ukraine war affected our risk tolerance?

This study focuses on examining the factors affecting financial risk tolerance and portfolio allocation among working-age highly educated adults in Bosnia and Herzegovina. It also explores how the Covid-19 pandemic and the Russian invasion of Ukraine have affected these financial decisions. We employed multinomial logistic regression, incorporating subjective and objective risk tolerance measures, and considered various socio-demographic and psychological risk-taking factors. The findings reveal that risk attitudes, along with investment knowledge and experience are the primary determinants of financial risk tolerance, while socio-demographic variables have minimal effect. Moreover, the recent financial turmoil resulting from the Covid-19 pandemic and the Russian invasion of Ukraine substantially influenced individual's subjective risk tolerance, with no impact on the objective risk tolerance, which is our main contribution to the existing literature. This study contributes to understanding of financial risk tolerance in emerging markets, shedding light on the key determinants and impact of significant global events.