Psychometric Evaluation of the Grable and Lytton Risk Tolerance Scale in Pakistani Context

Abstract

The difference in Investor’s personality creates an urge to understand individual financial behaviour. Investor’s personality thus is a combination of various traits and Risk tolerance is among one of those. Being one of the crucial and complex constructs, financial risk needs a reliable assessment tool. The Grable and Lytton Risk Tolerance Scale (GL-RTS) is used in many countries for this; however, its applicability within the Pakistani context had not been fully examined. This study aimed to evaluate the reliability and validity of the GLRTS among Pakistani retail investors. The study used a quantitative approach. A sample of 434 respondents was collected through an online structured questionnaire. Confirmatory Factor Analysis (CFA) was conducted using AMOS to test the scale structure. Reliability was assessed using Cronbach’s alpha and Composite Reliability (CR), while validity was examined through Average Variance Extracted (AVE) and model fit indices such as CFI, RMSEA, and SRMR. Results indicated good model fit (CFI = 0.949, RMSEA = 0.040, SRMR = 0.044), and Composite Reliability exceeded the acceptable threshold (CR = 0.779). However, AVE was low (0.2361), suggesting weak convergent validity. These findings suggest that while the scale structurally fits the data, certain items may require adaptation or removal to improve validity in the local context. Future research should consider cross-cultural studies to refine the scale further. The validated tool, with minor adjustments, can be valuable for financial advisors and researchers in understanding investor behaviour in emerging markets like Pakistan.

Keywords: Financial Risk, Risk Tolerance, Investor Behaviour, Psychometric Scale