Measuring the Perception of Financial Risk Tolerance: A Tale of Two Measures

14 Pages Posted: 16 May 2012 Last revised: 20 Feb 2013

See all articles by John Gilliam

John Gilliam

Texas Tech University

Swarn Chatterjee

University of Georgia

John Grable

University of Georgia - Department of Housing & Consumer Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 2010

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.

Keywords: financial risk tolerance, investment risk, risky assets, Survey of Consumer Finances

Suggested Citation

Gilliam, John and Chatterjee, Swarn and Grable, John, Measuring the Perception of Financial Risk Tolerance: A Tale of Two Measures (2010). Journal of Financial Counseling and Planning, Vol. 21, No. 2, 2010, Available at SSRN: https://ssrn.com/abstract=2061313

John Gilliam (Contact Author)

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Swarn Chatterjee

University of Georgia ( email )

Athens, GA 30602-3622
United States

John Grable

University of Georgia - Department of Housing & Consumer Economics ( email )

205 Dawson Hall
Athens, GA 30602-3622
United States

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