John Nofsinger Ph.D. on July 1, 2008
One of the foundational financial theories is that expected return and risk are positively correlated. In other words, high risk goes with high expected return. But people tend to believe the opposite, that risk and expected return are negatively correlated. They believe that the stocks they like will earn high expected return with low risk!
One of the foundational financial theories is that expected return and risk are positively correlated. In other words, high risk goes with high expected return. But people tend to believe the opposite, that risk and expected return are negatively correlated. They believe that the stocks they like will earn high expected return with low risk!