Which Types of Risk Tolerance Questions Should Be Used When Determining a Client’s Portfolio Allocation Preference?

Guillemette, Michael A.; Finke, Michael; Gilliam, John

doi:10.2139/ssrn.2009419

Cited by 15 publications

(17 citation statements)

References 22 publications

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“…The correlation between FRA questionnaire scores and a normalized actual risk-taking score was positive and statistically significant but rather low (0.27). At first sight, this result is dissimilar from existing evidence (Guiso and Sodini 2012;Guillemette et al 2012), and it requires further investigation. We introduced a different methodology aimed at understanding if and how the different components of FRA interact and their relationship with the revealed risk-taking.…”

Section: Questionnaire and Sample Relevant Datacontrasting

confidence: 95%

What Are Investors Afraid of? Finding the Big Bad Wolf

Alemanni

Uberti

2019

IJFS

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The aim of financial institutions and regulators is to find an effective way to measure the risk profile of different segments of investors. Both economists and psychologists developed several methodologies to elicit and assess individual risk attitude, but these are not perfect and show several drawbacks when used in practice. Thanks to a unique database of around 15,000 investors, this paper combines survey-based evidence with revealed preferences based upon observed asset allocation. This paper confirms some results known in the literature like the gender and age differences in risk-taking. Moreover, the behavioral clustering approach used for the analysis is useful in an inferential framework. The segments built starting from the questionnaire permit to “forecast” the individual risk attitude that is described by the individual choices in terms of asset allocation. Loss aversion per se is a relevant variable in explaining financial risk-taking.

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Section: Questionnaire and Sample Relevant Datacontrasting

confidence: 95%

What Are Investors Afraid of? Finding the Big Bad Wolf

Alemanni

Uberti

2019

IJFS

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“…This effect was not only shown in gambling situations but also in financial decisions (Diacon & Hasseldine, 2007;. Accordingly, Guillemette et al (2012) point out that amongst questions on self-assessment also questions incorporating loss aversion should be used to predict people's portfolio compositions. Consequently, measurement of financial risk tolerance needs to incorporate gain and loss situations as well as risk and certainty.…”

Section: Financial Decisions and Biasesmentioning

confidence: 93%

“…However, gathering objective data is not always possible due to lack of data and privacy protection. Thus, accurate selfassessment measures are considered best practice to predict portfolio allocations (Guillemette, Finke, & Gilliam, 2012).…”

Section: Introductionmentioning

confidence: 99%

RIsk SCreening on the Financial Market (RISC-FM): A tool to assess investors’ financial risk tolerance

Wahl

Kirchler

2020

Cogent Psychology

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To advise investors on the financial market according to their financial risk tolerance it is necessary to apply a valid and reliable instrument measuring financial risk tolerance. We develop a screening instrument which assesses different facets of financial risk tolerance, namely, risk propensity, risk attitude, risk capacity, and risk knowledge. First, an item pool was generated and discussed with lay people as well as financial advisors to assure the questions' understandability and answerability. Second, the most coherent and practice-oriented questions were tested empirically to determine four scales representing the four facets of risk tolerance. Third, resulting items were assessed using a representative sample of Austrian citizens interested in saving, stock trading, and investing, and psychometric quality of the instrument was determined.

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“…Two weeks prior to coming in for the experiment participants completed risk assessment questions from FinaMetrica, Grable & Lytton (2003), Guillemette, Finke and Gilliam (2012), Charles Schwab, Fidelity and two additional miscellaneous questions. All of the risk assessment questions had an ordinal sequence of choices that were mutually exclusive.…”

Section: Risk Assessment Questionsmentioning

confidence: 99%

An Analysis of Risk Assessment Questions Based on Loss-Averse Preferences

Guillemette

Yao

James

2015

Journal of Financial Counseling and Planning

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A variety of risk assessment questionnaires are used within the financial planning profession to assess client risk preferences. Evidence indicates that the average person overweighs losses relative to an arbitrary reference point. This paper evaluated risk assessment questions on how well they correlate with monetary loss aversion. Twenty-nine Western Texas residents between the ages of 27 and 56 participated in experimental research and filled out several risk assessment questionnaires. Two weeks later their levels of loss aversion were measured using monetary gain and loss scenarios. The individual risk assessment questions were placed into three categories: expected utility theory, prospect theory and self-assessment. Composite measures were created for within-group and between-group comparisons. Statistically significant correlations were found between monetary loss aversion and different composite measures. The results provide financial planners with a group of risk assessment questions that capture loss-averse preferences.

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Which Types of Risk Tolerance Questions Should Be Used When Determining a Client’s Portfolio Allocation Preference?

Cited by 15 publications

References 22 publications

What Are Investors Afraid of? Finding the Big Bad Wolf

What Are Investors Afraid of? Finding the Big Bad Wolf

RIsk SCreening on the Financial Market (RISC-FM): A tool to assess investors’ financial risk tolerance

An Analysis of Risk Assessment Questions Based on Loss-Averse Preferences

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