A Comparison of Risk Tolerance and Risk Capacity Among College Finance Students (Survey‪)‬

ABSTRACT The concept of risk aversion has been well-researched, and the prevailing wisdom for some time has been that most investors prefer to reduce the amount of risk required to obtain a given rate of return. This paper measures the difference between this aversion to investment risk (defined as risk tolerance) and an individual's capacity for investment risk. A questionnaire measuring both tolerance and capacity is given to 167 undergraduate and graduate students enrolled in a variety of Finance courses. It is hypothesized that for most participants, the risk tolerance score will be lower than the risk capacity score. It is further hypothesized that male students will have higher capacity and higher tolerance than female students, and that higher risk tolerance will be found among students enrolled in advanced finance and investing classes.