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Do Investment Risk Tolerance Attitudes Predict Portfolio Risk?

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Abstract

We investigated a new instrument designed to assess investment risk tolerance, the Risk Tolerance Questionnaire (RTQ). RTQ scores were positively correlated with scores on two other investment risk measures, but were not correlated with a measure of sensation-seeking (Zuckerman, 1994), suggesting that investment risk tolerance is not explainable by a general cross-domain appetite for risk. Importantly, RTQ scores were positively correlated with the riskiness of respondents’ actual investment portfolios, meaning that investors with high risk-tolerance score tend to have higher-risk portfolios. Finally, respondents with relatively more investment experience had more risk-tolerant responses and higher-risk portfolios than less experienced investors.

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Notes

  1. The Risk Tolerance Questionnaire described here was developed based on research by the present authors. The interactive, adaptive version of the RTQ tested in the present study was provided by and is the property of Investment Technologies Inc., 320 E. 72nd St., New York, NY 10021. A simplified self-scoring paper-and-pencil version of the Risk Tolerance Questionnaire has been published in the Wall Street Journal of July 14, 2000. Some validation results using this paper-and-pencil version of the RTQ have been reported by Yook and Everett (2003).

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Authors and Affiliations

  1. Teachers College, Columbia University, New York, USA

    James E. Corter

  2. Middle Tennessee State University, Murfreesboro, USA

    Yuh-Jia Chen

  3. Teachers College, Columbia University, 525 W. 120th St., Box 41, New York, NY, 10027, USA

    James E. Corter

Authors
  1. James E. Corter
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  2. Yuh-Jia Chen
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Correspondence to James E. Corter.

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Corter, J.E., Chen, YJ. Do Investment Risk Tolerance Attitudes Predict Portfolio Risk?. J Bus Psychol 20, 369–381 (2006). https://doi.org/10.1007/s10869-005-9010-5

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  • DOI: https://doi.org/10.1007/s10869-005-9010-5

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