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Measuring Financial Risk Attitude: How to Apply Both Regulatory and Scientific Criteria to Ensure Suitability

Author

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  • Bernhard A. Metzger
  • Robert R. Fehr

Abstract

Due to regulatory requirements, assessing investors' attitude toward financial risks is becoming increasingly important for advisors. To address this, the authors aimed to develop a risk attitude questionnaire, based on existing instruments, which fulfills both regulatory and scientific criteria. They conducted a survey on real investors and linked the survey data to actual portfolio data to test the validity of the instrument. The risk attitude index the authors developed uses only 6 easy-to-understand items, is reliable (Cronbach's α = 0.88), and explains substantial amounts of variance (R2 = 0.40) in the investors' behavior. It therefore fulfills regulatory and scientific criteria.

Suggested Citation

  • Bernhard A. Metzger & Robert R. Fehr, 2018. "Measuring Financial Risk Attitude: How to Apply Both Regulatory and Scientific Criteria to Ensure Suitability," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 19(2), pages 221-234, April.
    • Handle: RePEc:taf:hbhfxx:v:19:y:2018:i:2:p:221-234
    DOI: 10.1080/15427560.2017.1376331
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    Cited by:

    1. Nkosivile Welcome Madinga & Eugine Tafadzwa Maziriri & Tinashe Chuchu & Zinzi Magoda, 2022. "An Investigation of the Impact of Financial Literacy and Financial Socialization on Financial Satisfaction: Mediating Role of Financial Risk Attitude," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 14(1), pages 60-75, January.
    2. Saleh M. Shehata & Alaa M. Abdeljawad & Loqman A. Mazouz & Lamia Yousif Khalaf Aldossary & Maryam Y. Alsaeed & Mohamed Noureldin Sayed, 2021. "The Moderating Role of Perceived Risks in the Relationship between Financial Knowledge and the Intention to Invest in the Saudi Arabian Stock Market," IJFS, MDPI, vol. 9(1), pages 1-16, January.

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