RiskTRACK: the five-factor model for measuring risk tolerance
Abstract
Purpose
Currently, few academics agree on a standard and scientific way to measure risk tolerance. This paper aims to create a unique model for empirically measuring risk tolerance and to make a strong contribution to the growing literature in risk tolerance and risk management.
Design/methodology/approach
The authors use factor analysis and regression analysis to identify relevant factors for measuring risk tolerance.
Findings
The risk tolerance model is based on the acronymed model riskTRACK, which includes the five significant factors this paper identifies for measuring risk tolerance: traditional risk factor, reflective risk factor, allocation risk factor, capacity risk factor and knowledge risk factor.
Research limitations/implications
Uses for future research streams devoted to risk tolerance and risk management.
Practical implications
The results also have practical applications for the financial services industry, particularly risk management, portfolio management and financial planning.
Originality/value
In sum, this research expands previous research in risk tolerance and also adds to the growing literature in risk management. Once again, this paper is unique in that the authors develop a valid and reliable risk tolerance model based on five specific factors for measuring risk tolerance.
Keywords
Acknowledgements
The authors would like to thank the SFA conference, the AFS conference, the University of Alabama, Penn State Erie and the University of Tennessee Chattanooga for allowing them to present this paper and receive feedback from several participants and/or faculty members. The comments that the authors received allowed them to significantly improve this paper. The authors would particularly like to thank Buster Allaway for his help in finding respondents to test the questionnaire. The authors are solely responsible for any remaining errors. Access to the risk tolerance questions or questionnaire can be obtained by contacting the corresponding author.
Citation
Holzhauer, H.M., Lu, X., McLeod, R. and Wang, J. (2016), "RiskTRACK: the five-factor model for measuring risk tolerance", Journal of Risk Finance, Vol. 17 No. 4, pp. 428-445. https://doi.org/10.1108/JRF-04-2016-0054
Publisher
:Emerald Group Publishing Limited
Copyright © 2016, Emerald Group Publishing Limited