It's behind you...in search of equity risk

Article Abstract:

Equity risk tends to be underestimated using conventional approaches since risk can be magnified by what other traders are doing. Fund managers are under pressure to conform, since they may be sacked if they sell too early but are unlikely to lose their jobs if they panic at a time when other fund managers do so. Forced selling magnifies price moves, and there are also bandwagon effects. Assets tend to fall by large amounts when they do fall. Risks cannot be quantified,but there are high returns to compensate for high risk levels.

Risk (Economics)

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The elusive search for safety

Article Abstract:

Investors may be concerned about a drop in Wall Street, or that a bubble may have developed in internet stocks that could burst, and may seek safe assets. Cash is one such asset, though there is a risk of a drop in interest rates, especially if a crash occurred. British government securities (gilts) held to maturity offer certain nominal returns, though inflation could erode real returns. Long-terms assets expose investors to inflation risks, and short-term assets expose investors to reinvestment risks. Index-linked gilts are in demand from pension funds, so returns have dropped. Some equities may offer safe investments, but which equities varies from one investor to another.

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In search of growth

Article Abstract:

The performance of the US stock market is assessed using two portfolios, one based in New York and the other in California.

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