Empirical evidence on risk aversion for individual romanian capital market investors

Review of Economic and Business Studies 01/2008; 1(December):91-101.
Source: RePEc

ABSTRACT Stock prices move as corporate earnings prospects change but they also move as investors change their aversion to risk. One of the central tenets of finance is that investors expect higher return for taking risk. They exchange some of their risk less securities for risky assets because they expect the total pay-off in the long run to be optimal in terms of the risk-return trade-off. The previous studies proved that expected return is linearly related to risk and if we further assume investors are risk averse, the alluded relation will have to be positive. Risk aversion is reflected on a risk premium, which consists of an expected extra return that investors require to be compensated for the risk of holding stocks. We intend to evaluate the situation of Romania in terms of risk aversion. This study is very useful for understanding the differences between the individual investment behaviours in EU and to understand the further European market evolution taking into consideration this important variable - risk aversion.

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