A test of the relationship between self-classified financial risk-tolerance and investment risk-taking behaviour

John Grable, Michael Roszkowski, So Hyun Joo, Barbara O'Neill, Ruth H. Lytton

Research output: Contribution to journalArticlepeer-review

11 Scopus citations

Abstract

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 (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.

Original languageEnglish (US)
Pages (from-to)396-419
Number of pages24
JournalInternational Journal of Risk Assessment and Management
Volume12
Issue number2-4
DOIs
StatePublished - May 2009

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Statistics, Probability and Uncertainty
  • Management Science and Operations Research

Keywords

  • Financial risks
  • Investing
  • Investment suitability
  • Risk-assessment
  • Risk-tolerance

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