Risk-return trade-off

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 ?
Lochstoer, University of California, Los Angeles; and Stig Lundeby, Norwegian School of Economics, "Conditional Dynamics and the Multi-Horizon Risk-Return Trade-off" (NBER Working Paper No.
We want to provide clients with an attractive solution to the risk-return trade-off, without losing liquidity and scalability.'
Overall, the results suggest that increased disclosure may be associated with more efficient trading and an enhanced overall risk-return trade-off. These findings seem consistent with the view that market discipline affects not just the amount of risk a BHC takes, but how efficiently it takes that risk.
"There's a risk-return trade-off that they have to consider," he explained.
(5) These findings suggest an optimal futures hedge model to be set in a risk-return trade-off framework.
"The risk-return trade-off in Egypt is a fantastic one," he added.
In deciding upon an inflation hedge for your portfolio, you have to weigh the risk-return trade-off. I asked Prof.
Comtrust Asset Management said, "With an investment policy of investing in long-term stocks, the fund will concentrate on engaging in fundamental research to identify stocks which would provide above- average returns over the long term and will invest in sufficiently diversified portfolios at all times to mitigate the risk of excessive volatility and achieve a satisfactory risk-return trade-off."
There have been few studies in Indian context, some found significant risk-return trade-off and CAPM was applicable while others found it unsuitable.
Money market fund (MMF) managers have had the opportunity to build additional yield into their funds, however, the risk-return trade-off has been deemed unattractive in the current market environment, said Roxana Mahboubian, Director in Fitch's Fund and Asset Manager Rating group.
oThis is because banks in this region had limited incentives to seek inflated returns abroad when domestic markets offered a far better risk-return trade-off,o the report adds.