The Concept of Risk Tolerance in Personal Financial Planning
Journal of Personal Finance, 2008 with Michael S. Finke and Sherman D. Hanna
- Press Coverage:
- -"How to better understand your risk tolerance" by Robert Powell, MarketWatch (23 May 2012)
View: Abstract
Assessment of risk tolerance is fundamental to proper asset allocation within a household portfolio. It is also a frequently misunderstood concept and difficult to measure practically. We discuss the relationship between risk aversion and portfolio recommendations based on an expected utility approach, review selected empirical research on risk tolerance, and propose to separate risk capacity, expectations, and other factors from the concept of risk tolerance.