What is it about?
Financial planning requires an understanding of an investor's aversion to risk. A portfolio optimizer determines the portfolios on the efficient frontier, but the investor's risk aversion determines the best portfolio on the frontier for that investor. The questionnaire generates a numeric score that determines the best point on the frontier.
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Why is it important?
This method takes investor responses and calculates a numeric score using a the constant absolute risk aversion model. Unlike many other risk assessments, the numeric risk aversion score is part of the equations within Markowitz portfolio selection. No additional transformations or assumptions are needed.
Perspectives
Taking advantage of this method's cultural and demographic neutrality, we use this method to demonstrate that women are more risk averse than men.
Elliot Noma Noma
Rutgers The State University of New Jersey
Read the Original
This page is a summary of: A New Method of Measuring Financial Risk Aversion Using Hypothetical Investment Preferences: What Does It Say in the Case of Gender Differences?, Journal of Behavioral Finance, March 2018, Taylor & Francis,
DOI: 10.1080/15427560.2018.1431888.
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