Tag: Risk and Return
When a security trades at a price below its intrinsic value, it is described as “trading at a discount.” This phenomenon, influenced by macroeconomic factors and specific company events, has been a recurring theme throughout financial market history.
In complete markets, every possible outcome has a corresponding financial instrument, facilitating total risk mitigation. This environment is free of arbitrage and optimally processes market information. Nonetheless, achieving perfect market completeness is often elusive in practice.
The Efficient Frontier is a concept from Modern Portfolio Theory representing a set of optimal investment portfolios that offer the highest possible expected return for a given level of risk. It’s a valuable tool for balancing risk and return in investment strategy.