RiskTRACK: the five-factor model for measuring risk tolerance

Hunter Matthew Holzhauer, Xing Lu, Robert McLeod and Jun Wang

Journal of Risk Finance, 2016, vol. 17, issue 4, 428-445

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: Risk management; Factor analysis; Risk tolerance; G11; G20 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jrfpps:jrf-04-2016-0054

DOI: 10.1108/JRF-04-2016-0054

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