RiskTRACK: the five-factor model for measuring risk tolerance

Purpose - Currently, few academics agree on a standard and scientific way to measure risk tolerance. This paper aims to create a unique model for empirically measuring risk tolerance and to make a strong contribution to the growing literature in risk tolerance and risk management. Design/methodology/approach - The authors use factor analysis and regression analysis to identify relevant factors for measuring risk tolerance. Findings - The risk tolerance model is based on the acronymed model riskTRACK, which includes the five significant factors this paper identifies for measuring risk tolerance: traditional risk factor, reflective risk factor, allocation risk factor, capacity risk factor and knowledge risk factor. Research limitations/implications - Uses for future research streams devoted to risk tolerance and risk management. Practical implications - The results also have practical applications for the financial services industry, particularly risk management, portfolio management and financial planning. Originality/value - In sum, this research expands previous research in risk tolerance and also adds to the growing literature in risk management. Once again, this paper is unique in that the authors develop a valid and reliable risk tolerance model based on five specific factors for measuring risk tolerance.