Abstract: The quantification of investors’ risk appetite is one of the key steps in asset allocation. The article attempts to introduce an efficient method to measure the risk appetite from a new perspective. As more and more previous studies have shown, investors’ risk appetite, often measured by the risk aversion coefficient, is not a constant value. Thus it is of great significance to measure the risk appetite accurately in the investment process. In the Expected Utility Theory, the risk aversion coefficient is the quantification of risk appetite. In the Modern Portfolio Theory, however, the investors’ risk appetite is often measured by the maximum tolerable standard deviation, this is because the former can be difficult to be precisely valued. The relationship between the risk aversion coefficient and the maximum tolerable standard deviation for different types of investors is studied through mathematical derivation. Considering the long investment horizon in asset allocation, the inner relationship between long-term and short-term risk appetite is also studied.

Key words: asset allocation； risk appetite； risk aversion coefficient； investment horizon