The stock market : the risks and the returns involved

Abstract

The main aim of this dissertation is to highlight and analyse the risks and returns that an investor faces when investing in the stock market. These risks and returns are analysed in terms of how some famous academics view these two factors, that is risk and return. In fact, a substantial part of this dissertation deals with theories and evidence on the risk/return trade-off as presented by some famous theorists. Furthermore, by utilizing the various, and sometimes contrasting works of famous academics, the theme of risk and return can be better appreciated and developed. Thus, as one can see this, dissertation involves a theoretical approach to the theme of risk and return. For purposes of illustration, the analysis is based almost entirely on portfolios of securities rather than individual assets. This was necessary since the famous names whose work is presented in this dissertation, analysed risk and return vis-a-vis portfolios of assets. But even so, throughout the course of this work it becomes apparent that as a result of analysing portfolios, the aspects of risk and return can be better illustrated, especially because portfolios of assets are the means whereby an investor is able to diversify his assets. Diversification is, in fact, one of the main themes in this dissertation since it provides an investor with the ability to minimize risk and maximize return.