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Assuming an efficient market, that's exactly how it works - if there's more risk investors will require more reward to compensate.
by kypro 4y ago
Assuming an efficient market, that's exactly how it works - if there's more risk investors will require more reward to compensate.
- runnerup 4y agoThat’s a massive assumption. How efficient and rational does the stock market seem to you? With most of it driven by index funds and 401k contributions and even wall street traders jumping on bandwagons. Risk reduces alpha. Risk doesn’t increase alpha. Yes obviously in a perfectly rational environment there would be a “need” to reward necessary risk but the market definitely does not need to in this case. More than enough idiots will hold their positions overnight without any upside.
- BurningFrog 4y agoI think the point is it doesn't work "in reverse". Taking huge risks doesn't in itself mean you'll, on average, be hugely rewarded.