Digital Commons @ DU The development of the risky financial behavior scale: A measure of financial risk tolerance (original) (raw)
Related papers
Financial risk tolerance revisited: the development of a risk assessment instrumentâ
Financial Services Review, 1999
This paper explores conceptual, methodological, and empirical issues related to the development of a financial risk-tolerance assessment instrument. Financial risk tolerance is a significant factor in a number of household financial decisions, yet few recognized, valid, and reliable methods of assessment are available for use by financial service providers and educators. Empirical results from a multistage development of a 13-item risk assessment instrument are discussed. The multidimensional instrument is presented as the foundation for the development of a more widely used and accepted index. Future use by practitioners and researchers is encouraged to further validate the usefulness of the instrument.
The Face and Content Validity of an Instrument for Measuring Financial Risk Tolerance
Journal of Computational Innovation and Analytics (JCIA)
Accurate evaluation of investment risk tolerance is critical in an investment decision-making process because a mismatch between the risk an investor could tolerate and the risk-return expectations could lead to frustration towards the actual financial gains or financial losses. This study aims to develop a valid instrument (or scale) for self-directed Malaysian investors to measure financial risk tolerance based on four main constructs, i.e., risk attitude, risk propensity, risk capacity, and financial literacy. An initial 36-item instrument was developed based on the assessment framework from Cordell (2001), which subsequently was examined by four lay experts for face validity. Consequently, according to Andrian et al. (2018), seven professional experts, comprising theoretical, industry practitioner, and psychometric experts, were involved in reviewing the relevancy of the content of each item towards measuring financial or investment risk tolerance level. As a result, the instrum...
Financial risk tolerance and additional factors that affect risk taking in everyday money matters
Journal of Business and Psychology, 2000
The purpose of this research was to extend the investigative line of inquiry, as initiated by , regarding risk taking in everyday money matters by examining demographic, socioeconomic, and attitudinal characteristics that may be used either individually or in combination as determinants of financial risk tolerance. Discriminant analysis results indicated that risk tolerance was associated with being male, older, married, professionally employed with higher incomes, more education, more financial knowledge, and increased economic expectations. Findings suggest that the achievement of financial success can be explained, at least in part, by a combination of someone's personality characteristics and socioeconomic background.
Factors Influencing Financial Risk Tolerance: A Review
International Journal of Industrial Management, 2021
High financial risk tolerance level encourages investors’ participation in financial market. Thus, elevate their capabilities to achieve their financial goals and support national economic growth and well-being. This paper aims to investigate the factors affecting financial risk tolerance from studies around the globe. A comprehensive review of financial risk tolerance is carried out with a particular attention on factors that impact financial risk tolerance on financial decisions. This study indicates that financial risk tolerance can be explained by demographic profiles, psychology, social, geographical differences, and financial capability factors. These findings will be useful to professionals, technologists, and financial institutions to identify potential investors based on the indicators concluded with the suggestion on financial technology (FinTech) utilisation. Hence, encouraging participation in the Malaysian financial market during global health crisis and reaching ec...
An Empirical Investigation of Personal Financial Risk Tolerance
We analyse a large database of psychometrically derived financial risk tolerance scores (RTS) and associated demographic information. We find that people's selfassessed risk tolerance generally accords with RTS. Further we find that gender, age, number of dependents, marital status, income and wealth are significantly related to the RTS. Notably, the relationship between age and risk tolerance exhibits a significant nonlinear structure.
The Determinants of Risk Tolerance: A Behavioural Analysis
Corporate Ownership and Control, 2012
The traditional perspective of financial theory suggests an implicit rationality on decision making. Historically, researches have revolved around demographic, social and economic heuristics, thus neglecting the emotional, cognitive and behavioral suppositions, related to financial decision making. In this sense, this study aims to evaluate which are the determining factors for risk tolerance. So, we carried out a survey on 815 individuals residing in Santa Maria, Julio de Castilhos and Cruz Alta, Brazil. Afterwards, we performed a CFA and, eventually, a regression analysis. Generally and consistently, the suppositions for rationality were refuted, though consistent to the Prospect Theory, validating the numerous studies that demonstrate the violation of the rationality suppositions. The heuristics which are traditionally used in order to determine the level of risk tolerance have not shown to be significant in this research. The cognitive, emotional and behavioral dimensions of dec...
Journal of Multinational Financial Management, 2003
This study examines the relationship between a psychometrically derived measure of subjective financial risk tolerance and a range of demographic characteristics that are widely used as a basis for heuristically derived estimates of investors' attitudes towards financial risk. The validity of widely used demographics such as gender, age, income and wealth as determinants of risk tolerance is supported, although the relationships found are not as simple as implied by the demographic heuristics. In particular, risk tolerance exhibits concavity in respect to income across all age groups and irrespective of gender. However, education, marital status and dependents, which have been found to be significant in previous studies, were not found to be significant determinants of an individual's attitude towards risk in this study. #
Measuring an Individual's Tendency to Take Risks: The Risk Propensity Scale
Journal of Applied Social Psychology, 2008
A new, short, and easily administered Risk Propensity Scale (RPS) is introduced that measures general risk-taking tendencies. This paper investigates the reliability and discriminant validity of the RPS. The RPS provided scores that yielded a good internal reliability coefficient and adequate test-retest reliability, and the scores correlated moderately to well with those of the Everyday Risk Inventory and the short Sensation-Seeking Scale. The correlation with the scores from other scales (Need for Cognition scale, Need for Structure scale, and 2 self-esteem scales) was low to moderate, indicating good discriminant validity. The findings are discussed in relation to risk-perception research using gambling experiments and in relation to their usefulness for risky decision-making research.
International Journal of Risk Assessment and Management, 2009
The purpose of this study was to determine how accurately individuals judge their own level of financial risk-tolerance and whether self-assessed financial risk-tolerance is associated with investment risk-taking behaviours. Using a sample of internet risk-assessment survey respondents Self-classified financial risk-tolerance 397 (n = 1,740), it was concluded that individuals do a fair job of assessing their own level of financial risk-tolerance using self-classifications into one of four levels of risk-tolerance (r = 0.50 with risk-tolerance test score). Moreover, this self-classification was associated with actual risk-taking investing behaviours. Individuals who saw themselves as real risk avoiders or cautious when making investments tended to hold more cash than riskier assets like equities. Conversely, individuals who viewed themselves as gamblers or being willing to take risks after completing adequate research had larger holdings in equities.
Assessing the concurrent validity of the SCF risk tolerance question
2001
The Survey of Consumer Finances (SCF) offers researchers one of the most popular sources of data for the study of financial risk tolerance. This paper reports findings from two studies that were designed to test the concurrent validity of the SCF financial risk tolerance assessment question. Comparisons between the commonly used one-item SCF assessment measure and a 13-item risk-tolerance assessment index were undertaken. Results of the concurrent validity analyses suggest that the SCF question does not represent the full spectrum of financial risk tolerance, but might reflect investment choice attitudes or experience.