RT Journal Article
SR Electronic
T1 Risk Tolerance, Return Expectations, and Other Factors Impacting Investment Decisions
JF The Journal of Wealth Management
FD Institutional Investor Journals
SP 10
OP 30
DO 10.3905/jwm.2020.1.124
VO 23
IS 4
A1 Sam Sivarajan
A1 Oscar De Bruijn
YR 2021
UL https://pm-research.com/content/23/4/10.abstract
AB Do risk tolerance questionnaires predict risk-taking? Traditionally, investor preferences have been identified using risk tolerance questionnaires. However, there has been little focus as to whether the questionnaires are actually useful in predicting risk-taking decisions of investors and advisers. The purpose of this research was to review the existing literature and, using an online analytical survey, conduct a statistical analysis to determine the relationship between risk tolerance and risk-taking. The resulting quantitative analysis was complemented with qualitative interviews. The main findings are that return expectations and demographic variables are important predictors of risk-taking decisions, whereas risk tolerance questionnaires are not. A framework of two models was developed to better understand investment decisions. It forms the basis for a general discussion of the implications of these findings for practitioners and other stakeholders.TOPICS: Wealth management, risk management, portfolio theory, portfolio constructionKey Findings▪ Risk tolerance questionnaires do not predict risk-taking decisions by investors or advisers.▪ Return expectations do predict risk-taking decisions by investors and advisers.▪ Investor demographic factors (gender, marital status, net worth) and adviser demographic factors (education, licensing) also predict risk-taking.