Written By: Wee Kang Chung, and Wing Tung Au
This study examines the degree to which the customer risk profiling measure (CRPM), commonly used by financial institutions to determine loss tolerance of investors, is psychometrically valid in assessing risk tolerance and predicting anxiety after experiencing a significant investment loss. Data were collected online from 91 respondents with various investment experience. Results suggest that CRPM is significantly correlated with the Grable and Lytton’s Financial Risk Tolerance Scale (G/L-RTS), a validated financial risk tolerance measure. CRPM is also able to predict anxiety after experiencing a significant investment loss. Furthermore, CRPM also demonstrates incremental predictive validity above and beyond G/L-RTS in predicting anxiety after investment loss.