MEASURING RISK PROFILE WITH A MULTIDIMENSIONAL RASCH ANALYSIS
Journal Title: Journal of Applied Quantitative Methods - Year 2011, Vol 6, Issue 4
Abstract
In this paper we propose an evaluation of investors’ risk profiles such as to meet the minimal requirements that Italian financial institutions must satisfy by law (d. lgs. 164, 2007). Thus we investigate all aspects specific to so-called risk profiles: an investor’s knowledge and his financial experience (concerning financial instruments and their use); financial objectives, a personal predisposition to risk /earn and the temporal horizon. The methodology used in financial literature with regard to risk profiles is essentially based on simplistic statistical analyses that often fail to consider possible psychological aspects. In order to account for investor preferences and psychological attitudes, we suggest to use an item response theory model. We first assume a unidimensional model, belonging to the family of Rasch models and then, as an alternative approach, a Generalized Multidimensional Rasch model. In particular, the objective is to assess the value of a questionnaire whose items describe different characteristics of the main latent variable risk profile. Under the assumption of a multidimensional measurement model, given the multivariate position of each investor with respect to identified latent traits we can represent his position with respect to possible investments proposed by a bank and we can identify different situations that respect the investor’s risk profile and best characterize typical investor choices.
Authors and Affiliations
Valeria CAVIEZEL, Lucio BERTOLI-BARSOTTI, Sergio Ortobelli LOZZA
Keywords
Related Articles
- EP ID EP131049
- DOI -
- Views 94
- Downloads 0
The Contribution of Labour and Capital to Romania’s and Moldova’s Economic Growth
In the present research we have used the Cobb-Douglas production function in its classical form for analyzing Romania’s and Moldova’s economic growth in relation to the intensity of using capital and labour as determinan...
Young Public Manager in Romania - a New Approach
This paper addresses issues of civil service development, in the context of public administration reform. There are, in the countries of the old and new Europes, a wide variety of approaches to training and development i...
SAFETY AT WORK IN EUROPE: AN EFFICIENCY ANALYSIS
Nowadays workplace accidents are more and more recognised as a social problem that has undesirable consequences on both human and organisations. As a result, there has been increasing concern in improving working conditi...
Interactive Methods Used in Graduate Programs
Any professional act will lead to a significant change. How can one make students understand “managing change” as a consequence or as an intended objective? “DECISION IN CASCADE” – is a Management Computational Game for...
INFORMATION ENTROPY AND OCCURRENCE OF EXTREME NEGATIVE RETURNS
This study is intended to investigate the connection between the complexity of a capital market and the occurrence of dramatic decreases in transaction prices. The work hypothesis is that such episodes, characterized by...