Companies face risks every day, they are part of normal business life. There are many
risks — both threats and opportunities — which may impact on a company‘s
resources, projects and profitability. Risk means different things to different businesses
and organizations. Undoubtedly, the risk represents both a potential threat and
potential opportunity for businesses.
Every business and decision involves a certain amount of risk. Risk might cause a loss
to a company. This does not mean, however, that businesses cannot take risks.
In this chapter you will learn the relationship between present value and future value, consider the eff ects of compound growth, learn how risk-averse people reduce the risk they face, analyze how asset prices are determined.
Moreover, even if it were established that options increased risk taking, it is not clear
whether such an outcome would be desirable or undesirable from the perspective of the
shareholders. Risk-averse managers, who hold disproportionate amounts of their financial and
human capital in the companies they manage, are likely to take fewer risks than are optimal. This is
an agency problem that is likely magnified in companies where top executives enjoy substantial
rents from their positions, and have strong incentives not to take risky actions that may get them
removed from their positions.
Nội dung chính của chương 2 Độ E ngại rủi ro và chiến lược phân phối tài sản nằm trong bài giảng Đầu tư tài chính nhằm trình bày về khái niệm cơ bản về lý thuyết danh mục như phần bù rủi ro (Risk premiums), độ e ngại rủi ro (Risk aversion), và giá trị hữu dụng.
The most compelling and credible testimony to biotech crops is that during the 16 year period 1996 to 2011, millions of farmers in 29 countries worldwide, elected to make more than 100 million independent decisions to plant and replant an accumulated hectarage of more than 1.25 billion hectares – an area 25% larger than the total land mass of the US or China – there is one principal and overwhelming reason that underpins the trust and confidence of risk-averse farmers in biotechnology – biotech crops deliver substantial, and sustainable, socio-economic and environmental benefits.
The impact of the crisis further increases the market failure – also driven by increased risk aversion
on the supply side of microfinance - and underlines the need for public support for this emerging
sector in Europe.
In addition to the fundamental structural problems of the microfinance sector in Europe, public
intervention has largely been justified and substantiated with positive externalities, i.e. that social
and financial inclusion generates attractive economic and social returns.
• Investors are risk-averse individuals who maximize the expected utility of their wealth • Investors are price takers and they have homogeneous expectations about asset returns that have a joint normal distribution (thus market portfolio is efficient) • There exists a risk-free asset such that investors may borrow or lend unlimited amount at a risk-free rate. • The quantities of assets are fixed. Also all assets are marketable and perfectly divisible. • Asset markets are frictionless. Information is costless and simultaneously available to all investors.
Tax compliance researchers begin with the supposition that people compare the marginal benefit of noncompliance (reduced tax payments, for example) with the expected marginal costs, which account for both the likelihood of punishment and its severity. That perspective provides an approach for evaluating the effective penalties uninsured people could anticipate under an individual health mandate.
Microfinance institutions have been affected by the adverse macro-economic conditions during
the global financial and economic crisis, generally through significantly higher bad debt rates
among their clients and in some cases through increased difficulties in accessing external sources
Real and perceived quality gaps in public coverage and delivery systems serve as an impetus for
PHI purchases in some countries. Waiting times, increasing demand for choice, and perceptions of
inadequacy of public systems are leading motivations in Ireland, Australia, Denmark, and the United
Kingdom. Where public cover is not provided, primary PHI policies are purchased mainly to minimise the
financial risks associated with illness. Finally, the diversity in consumer attitudes and preferences is
difficult to compare across countries.
Many of the early compliance models assumed that audits were expensive but that penalties could be imposed at low cost to the enforcing agency once an error had been detected. It is not surprising that those models typically showed that, subject to a fixed-budget constraint, the combination of high penalties and low audit rates was socially optimal (McCubbin, 2004).
Those results are sensitive to several underlying assumptions. First, feelings about risk vary from one group to another; younger people, for example, could be less risk-averse than older people are.
In addition McQueen and Vorkink (2004) are able to reproduce GARCH volatility using a
preference-based model with time-varying sensitivity to news. In a related paper, Vanden (2005)
develops a model where the representative agent exhibits a utility function with several risk aversion
regimes, which in equilibrium leads to volatility regimes and volatility clustering.
We find that trusting individuals are significantly more likely to buy stocks and risky assets
and, conditional on investing in stock, they invest a larger share of their wealth in it. This effect
is economically very important: trusting others increases the probability of buying stock by
50% of the average sample probability and raises the share invested in stock by 3.4 percentage
points (15.5% of the sample mean).
These results are robust to controlling for differences in risk aversion and ambiguity aversion.
This book examines women’s financial activity from the early days of the stock
market in eighteenth-century England and the South Sea Bubble to the mid
twentieth century. The essays demonstrate how many women managed their
own finances despite legal and social restrictions and show that women were
neither helpless, incompetent and risk-averse, nor were they unduly cautious and
conservative. Rather, many women learnt about money and made themselves
effective and engaged managers of the funds at their disposal....
Second, information should be thought of as better if it reduces the uncertainty
surrounding some future cost or benefit. For instance, future liabilities are inherently
uncertain. Information that can narrow the variance on estimates of those uncertain liabilities
should be considered better information. Reduced variance is particularly valuable when
decision-makers are risk-averse, since a reduction in variance alone can lead to different
decisions when there is risk aversion.
Capital market development in Brazil is a key policy issue going forward to foster savings,
investment and absorptive capacity in a context of prospects for sizable capital flows in the
medium term. During the last decade, Brazil has achieved substantial progress in capital
market development. The menu of available financial instruments has been expanded, market
infrastructure has been reformed and strengthened, and a diversified investor base has been
Firms obviously choose to insure risk-averse workers when the premium is fair. They may choose to
do so even if the premium is slightly higher than the expected cost. Nevertheless, if a ﬁrm’s expected
health cost is signiﬁcantly lower than the premium, it may choose not to offer insurance to workers. As
we have just observed, small ﬁrms have higher variances in health costs. Hence, relative to large ﬁrms,
more small ﬁrms will have expected costs that are signiﬁcantly below the offered premium, and they
choose not to offer insurance to workers.
Stability Bonds would make the euro-area financial system more resilient to future
adverse shocks and so reinforce financial stability. Stability Bonds would provide all
participating Member States with more secure access to refinancing, preventing a sudden loss
of market access due to unwarranted risk aversion and/or herd behaviour among investors.
Accordingly, Stability Bonds would help to smooth market volatility and reduce or eliminate
the need for costly support and rescue measures for Member States temporarily excluded from
Consider an investor in country j deciding whether to purchase stocks and/or bonds in a
foreign country i1. The investor compares the expected return on an investment in country i1
to the expected return in country j as well as the expected return in country i2. How does an
investor decide where to invest? One set of scholarship explicitly assumes that investors are
risk averse and use the international asset pricing model (ICAPM) to understand international
Keynes’s liquidity preference theory touched on the maturity transformation issue. He argued
that the private sector’s willingness to assume liquidity and maturity risks is not
well-anchored in fundamentals. Instead it is strongly influenced by subjective factors. Hence
his policy prescription was that government debt issuance should “accommodate the
preferences of the public for different maturities”. It was, he argued, socially desirable that
risk-averse investors should be offered some minimum, safe return on their capital.