Ruth H. Lytton

Financial risk tolerance revisited: the development of a risk assessment instrument*

Abstract This paper explores conceptual, methodological, and empirical issues related to the development of a financial risk-tolerance assessment instrument. Financial risk tolerance is a significant factor in a number of household financial decisions, yet few recognized, valid, and reliable methods of assessment are available for use by financial service providers and educators. Empirical results from a multistage development of a 13-item risk assessment instrument are discussed. The multidimensional instrument is presented as the foundation for the development of a more widely used and accepted index. Future use by practitioners and researchers is encouraged to further validate the usefulness of the instrument.JEL classification:D81

Household insolvency: A review of household debt repayment, delinquency, and bankruptcy

Abstract This review paper explores the issues related to the meaning and measurement of insolvency within the domain of household finances. Conceptual and empirical evidence to explain the onset of insolvency is reviewed. Predictive models and financial ratios are presented as techniques for identifying insolvent households. Implications for monitoring of solvency by households and responses to insolvency are presented.

Risk Tolerance, Projection Bias, Vividness, and Equity Prices

This article examines two hypotheses. First, investor risk tolerance fluctuates in part due to changes in the investment markets, and, second, investors tend to project stock market closing price data into the formation of risk-tolerance attitudes. Regression tests were conducted to determine the role of projection bias and vividness in the formation of risk attitudes among a convenience sample of internet survey respondents (N = 1,355). It was found that individuals who own securities tend to use recent and vivid stock market data when establishing risk attitudes. Further, risk attitudes, on average and in the aggregate, were found to fluctuate based on closing stock prices the previous week. Financial planners are cautioned that risk tolerance should not be used as a static input within asset allocation models.

A test of the relationship between self-classified financial risk-tolerance and investment risk-taking behaviour

The purpose of this study was to determine how accurately individuals judge their own level of financial risk-tolerance and whether self-assessed financial risk-tolerance is associated with investment risk-taking behaviours. Using a sample of internet risk-assessment survey respondents (n = 1,740), it was concluded that individuals do a fair job of assessing their own level of financial risk-tolerance using self-classifications into one of four levels of risk-tolerance (r = 0.50 with risk-tolerance test score). Moreover, this self-classification was associated with actual risk-taking investing behaviours. Individuals who saw themselves as real risk avoiders or cautious when making investments tended to hold more cash than riskier assets like equities. Conversely, individuals who viewed themselves as gamblers or being willing to take risks after completing adequate research had larger holdings in equities.

Household Equipment Research: Past Accomplishments, Challenges for the Future.

Household equipment research has been conducted continuously, but at a rel atively low level, in a number of colleges and universities throughout the 75 year history of the American Home Economics Association. Researchers have re sponded to needs of families for information regarding new appliances or in novative features on appliances. Energy and consumer protection have been frequent topics in recent years. Titles of many studies prior to 1950 reflected concerns of engineers engaged in product development; those since 1950 are more reflective of the concerns of marketers. If household equipment research is to continue, researchers in the field must cooperatively address the interrelated problems of conceptualization, visibility, funding, and a “reactive” perspective.