Measuring the perception of financial risk tolerance:A tale of two measures

John Gilliam, Swarn Chatterjee, John Grable

Research output: Contribution to journalArticlepeer-review

41 Scopus citations

Abstract

The assessment of financial risk tolerance, as a tool for managing expectations of portfolio volatility, is essential to goal attainment. This study compares two empirical measures of risk tolerance and separately examines the association between these measures of risk tolerance and asset allocation. The instruments used to determine investors' perception of financial risk tolerance are the Survey of Consumer Finance's (SCF) single-question measure and a 13-item, multidimensional measure developed by Grable and Lytton (1999). A sample comprised of 328 respondents, predominantly faculty and staff at colleges and universities in the Southwest, completed a 38-question, web-based survey. Results suggest that, while both scales are associated with preference for risky or non-risky asset allocation among respondents, the 13-item scale has greater explanatory power.

Original languageEnglish
Pages (from-to)30-43
Number of pages14
JournalJournal of Financial Counseling and Planning
Volume21
Issue number2
StatePublished - 2010

Keywords

  • Financial risk tolerance
  • Investment risk
  • Risky assets
  • Survey of consumer finances

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