A Domain Specific Measure of Investment Risk Preference

Authors

  • Eun Jin Kwak
  • John Grable University of Georgia

DOI:

https://doi.org/10.61190/fsr.v33i1.4032

Keywords:

Risk Preference, Risk Tolerance, Scale, Risk Scale

Abstract

This study introduces and validates a domain-specific investment risk-preference measure that integrates elements of revealed-preference tests, using choice scenario dyads, with stated-preference approaches that leverage individual experiences and perceptions. Data from two surveys were analyzed using OLS regression and ordered logit models to evaluate the measure’s efficacy. Results demonstrate that the proposed measure is positively associated with a modified version of the Survey of Consumer Finances (SCF) self-assessed risk-tolerance item and negatively associated with cash-holding behavior. Compared to existing risk-tolerance assessments, this measure offers a practical advantage by allowing financial advisors to align investment products more accurately with a test-taker’s risk-taking comfort level. This direct applicability highlights the measure's unique value in enhancing portfolio personalization and advancing the precision of investment risk assessment tools.

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Published

2025-02-28

How to Cite

Kwak, E. J., & Grable, J. (2025). A Domain Specific Measure of Investment Risk Preference. Financial Services Review, 33(1), 165–178. https://doi.org/10.61190/fsr.v33i1.4032

Issue

Vol. 33 No. 1 (2025): Financial Services Review

Section

New Original Submission

License

Copyright (c) 2024 Eun Jin Kwak; John Grable

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