Risk-return trade-off

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Risk-return trade-off

The tendency for potential risk to vary directly with potential return, so that the more risk involved, the greater the potential return, and vice versa.

Risk-Return Trade-Off

The concept that every rational investor, at a given level of risk, will accept only the largest expected return. That is, given two investments at the exact same level of risk, all other things being equal, every rational investor will invest in the one that offers the higher return. The risk-return tradeoff is pervasive throughout economics and finance. It is the reason that riskier bonds pay higher coupons than other bonds. It is also the reason that bonds pay lower returns than most stocks because they are a less risky investment. The Markowitz Portfolio Theory attempts to mathematically identify the portfolio with the highest return at each level of risk. See also: Markowitz Efficient Portfolio.
References in periodicals archive ?
Capital inflows to EMEs have been differentiating among countries, based on investor perceptions of risk-return trade-offs.
Table 5 Risk-Return Trade-offs (for Year 2012) Hedge Portfolio Portfolio Increase Reduction Cost Ratio, h Return Variance in Cost in Risk Elasticity Hedging with One Month Futures 0.
Mitra is primarily engaged in economic and financial analysis of transactions between related entities of a multinational enterprise for the determination of arm's length prices, in valuation of intangible property, and in the measurement and benchmarking of risk-return trade-offs.
Review existing SME portfolio and assess the risk-return trade-offs
Kautilya considered risk-return trade-offs in making choices involving risky situations.
The authors provide an analytically convenient continuous-time approximation and show how subjective rates of time preference affect risk-free rates but not instantaneous risk-return trade-offs.
The framework will drive them to become more vigilant in optimising their risk-return trade-offs, which in turn, will facilitate sustainable growth and development.