Investors’ financial risk tolerance is crucial in the formulation of suitable financial advice; in the past, assessment efforts relied on multiple approaches and techniques but their consistency is still an issue. We focus on two metrics traditionally proposed (self-assessment and portfolio composition) and we test their mutual consistency with an innovative methodology applied to a sample of 2,374 investors. Our approach innovatively allows us to discriminate between inconsistencies due to wrong portfolio compositions and those arising from wrong self-assessments. We show that low financial literacy, high income, no children and incautious economic behavior are commonly associated with such inconsistencies.
Mind the gap. Inconsistencies between subjective and objective financial risk tolerance
MARINELLI, NICOLETTA;
2017-01-01
Abstract
Investors’ financial risk tolerance is crucial in the formulation of suitable financial advice; in the past, assessment efforts relied on multiple approaches and techniques but their consistency is still an issue. We focus on two metrics traditionally proposed (self-assessment and portfolio composition) and we test their mutual consistency with an innovative methodology applied to a sample of 2,374 investors. Our approach innovatively allows us to discriminate between inconsistencies due to wrong portfolio compositions and those arising from wrong self-assessments. We show that low financial literacy, high income, no children and incautious economic behavior are commonly associated with such inconsistencies.File | Dimensione | Formato | |
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