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. On the domestic front, the growth of real gross value added (GVA) accelerated sequentially in Q2 of 2017-18, after five consecutive quarters of deceleration.
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. He specializes in dealing with tax authorities on transfer pricing issues, including audits, competent authority negotiations and Advance Pricing Agreements (APAs).
Review existing SME portfolio and assess the risk-return trade-offs
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. They also examine the quantitative effects of hyperbolic discounting in an economy in which log endowments are subject to temporary and permanent shocks that are governed by a Feller (1951) square-root process.
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.
There have been few studies in Indian context, some found significant risk-return trade-off and CAPM was applicable while others found it unsuitable.
"Kautilya on risk-return trade-off and diversification".