The Composite Index of Propensity to Risk – CIPR

The results indicate that the risk aversion index has a good explanatory power for the investment decisions related to financial assets such as bank deposits and securities, whereas investments in insurance products are not directly and exclusively predictable from risk attitudes. This is mainly due to the complexity of insurance products, combining investment opportunities and pure insurance products. Two additional motivations are evident in correspondence to the investments in insurance: i) the long time lags specific to these options can outbalance the portfolio investment decisions in favor of bank deposits and securities, characterized by short-term perspectives, and ii) different countries usually enact different insurance-related policies, such as pension plans, regulations etc. In the long-term perspective, the results show that some countries tend to be more risk-averse than others. In Japan, for instance, despite of its risk-averse historical profile, the most recent evidence indicates how investment decisions have turned onto a risk-seeking path recently – understandable given the ultra-low yield environment in this country. The entrepreneurial spirit of Japanese investors is capable of breaking the stereotypes we used to imagine about this culture. In Europe, the case of France has a demographic explanation: given its relatively high birth rates, French households seem to have a tendency of accepting uncertainty more readily than people from other countries where the ageing process is in full swing, causing an increase in the levels of risk aversion. Interestingly, Portugal, Spain and above all Greece were all on decreasing risk aversion trends, showing indulgence for risky investments during the “boom years,” whereas Ireland has developed an increasing sensibility to risk early on. The United States is found to be representative for the risk-seeking behavior, although the financial crisis has definitely prompted a dramatic change of perspective in the opposite direction. Undoubtedly, the risk attitude is not stable over time: it changes with the economic turmoil. Whenever unexpected events occur, the shield of protection against risky investments is raised.