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Basic Question 1 of 22
If world events cause investors to become more risk-averse, we would expect the market risk premium to increase. True or False?
User Contributed Comments 4
| User | Comment |
|---|---|
| Juhee | Any one explanation? isn't risk-averse related to investors' nature? |
| reganbaha | In a risk-averse setting, investors will require a higher return in order to participate in more risky investments, hence the risk premium would have to rise to entice these investors |
| ArainNow | Higher premiums entice investors to take risks. |
| jonan203 | take a look at the markets today, most of the volume in equity markets is attributed to algorithms and high frequency traders...mom and pops a leaving the markets in droves since the required risk premium is non existent and will only return if said premium increases for the given level of risk one must take to invest in equities. |
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Learning Outcome Statements
explain risk aversion and its implications for portfolio selection;
CFA® 2024 Level I Curriculum, Volume 5, Module 62.