Table A1 Risk propensity questions... | Emerald Publishing

Table A1

Risk propensity questions mapped to the latent variable

Question	Options	Latent variable	Question inspired from
q1. What is the primary motive of your investment?	a) Moderately fair returns at minimal risk b) Achieve high returns c) No capital loss, prefer low equity exposure	Return expectations	Risk-return is a time-honoured relationship, investors expecting higher returns are willing to assume higher risk (Malkiel and Xu, 1997)
q2. Which of these statements is more agreeable to you?	a) Buy stocks with a high dividend yield b) Buy different stocks to gain momentum across market cycles c) Strike a balance between opt a) and b)	Investment. Style	Investment style is one of the key detriments of risk-adjusted performance (Lobosco, 1999). Choice of style will determine the quantum of risk an investor is willing to assume
q3. Regarding incremental investment in equity – Which statement best describes your plans?	a) Increase according to portfolio strategy and comfort level b) Only funds which are not required for needs/goals will be invested c) Periodic infusion of additional funds	Fund Infusion	BPT indicates that investors are willing to infuse additional funds into risky assets after taking care of their financial goals (Shefrin and Statman, 2000). Essentially, if they are planning their financial goals using the equity route, they may choose to keep the exposure minimal
q4. You will not access your equity investments for the next 10 years. Do you agree?	a) Fully agree b) Somewhat agree c) Do not agree	Time horizon	Risk tolerance tends to increase as the investment horizon increases. From a portfolio management perspective, long-term is defined as 5–10 years (Hoffmann et al., 2015; Fulton et al., 2012)
q5. If the equity investment took a sharp hit by 20%, what would you prefer to do?	a) Buy more to average the cost b) Ignore or move funds to safer avenues – bonds, bank deposits c) Move funds from risky stocks to less risky stocks	Risk tolerance	The traditional definition of a bear market is a condition where securities fall by 20% or more amidst negative investor sentiment. Downside risk appetite is a key determinant of risk propensity (Quail and Belluz, 2012)

Question	Options	Latent variable	Question inspired from
q1. What is the primary motive of your investment?	a) Moderately fair returns at minimal riskb) Achieve high returnsc) No capital loss, prefer low equity exposure	Return expectations	Risk-return is a time-honoured relationship, investors expecting higher returns are willing to assume higher risk (Malkiel and Xu, 1997)
q2. Which of these statements is more agreeable to you?	a) Buy stocks with a high dividend yieldb) Buy different stocks to gain momentum across market cyclesc) Strike a balance between opt a) and b)	Investment. Style	Investment style is one of the key detriments of risk-adjusted performance (Lobosco, 1999). Choice of style will determine the quantum of risk an investor is willing to assume
q3. Regarding incremental investment in equity – Which statement best describes your plans?	a) Increase according to portfolio strategy and comfort levelb) Only funds which are not required for needs/goals will be investedc) Periodic infusion of additional funds	Fund Infusion	BPT indicates that investors are willing to infuse additional funds into risky assets after taking care of their financial goals (Shefrin and Statman, 2000). Essentially, if they are planning their financial goals using the equity route, they may choose to keep the exposure minimal
q4. You will not access your equity investments for the next 10 years. Do you agree?	a) Fully agreeb) Somewhat agreec) Do not agree	Time horizon	Risk tolerance tends to increase as the investment horizon increases. From a portfolio management perspective, long-term is defined as 5–10 years (Hoffmann et al., 2015; Fulton et al., 2012)
q5. If the equity investment took a sharp hit by 20%, what would you prefer to do?	a) Buy more to average the costb) Ignore or move funds to safer avenues – bonds, bank depositsc) Move funds from risky stocks to less risky stocks	Risk tolerance	The traditional definition of a bear market is a condition where securities fall by 20% or more amidst negative investor sentiment. Downside risk appetite is a key determinant of risk propensity (Quail and Belluz, 2012)

Source(s): Compiled by authors by consulting various sources