Risk profile versus portfolio selection: a case study

This paper proposes an evaluation of the investors’ risk profile in order to satisfy the minimal requirements of the law (d. lgs. 164, 2007) for the Italian financial institutions. Thus we investigate all aspects specific to the risk profile: the investor’s knowledge and his/her financial experience (concerning financial instruments and their use), the financial objectives, the personal predisposition to risk /earn and the temporal horizon. In particular, we suggest to use a Generalized Multidimensional IRT model to take into account the investors’ preferences and their psychological attitudes. Therefore we assess a questionnaire whose items describe different characteristics of the main latent variables of the risk profile. As dataset we use some anonymous responses to the questionnaire of the retail category of UBI><Banca. Clearly this case study can be used in a more general context to address properly the investors’ choices taking into account the individual risk profile.