Question

QUESTION: The widely shared expectations of hard times ahead tend to cause investors to become less risk-averse.

ANSWER OPTIONS: True False You need to specifically state IN THE SUBJECT LINE if the answer is TRUE or FALSE.

EXAMPLES OF INADEQUATE RESPONSES: “I think the answer is False.” OR “The correct answer is “C.”

Postings must be no less than 200 words in length to be considered. Any posting less than 200 words in length will not be reviewed.

Answer 1

The answer of the above proposition is actually false. We can say that an investor is risk averse means he doesn't like to take risk. Elaborating this, we can take the example of an investor who has two investments to decide. Both of the investments would generate simliar kind of expected return but their risk factors are different. So, for a risk averse investors should go for the investment having minimal risk if we for a moment consider the question statement as true. Now in real world, this doesn't hold trye. First of all, if some investor take the decision of going with low risk investment, he/she is actually losing the opportunity of not making high returns. Because every expected hard time actually bring the opportunity to go for quality investment at discounted price and make good return out of it during favorable time in the market. A risk averse investor in that sense can't go for this opportunity and basically his/her chances to make money from market volatility or risk is almost impossible. They actually go for riskless guaranteed return products, no risk and minimum ruturn. These risk averse investor is not a part of the investment market having stocks with more volatility, more risk but ample opportunities. So, a risk averse investor is actually not part of this proposition in correct sense, be it normal or hard time in the market. They always tend for safer, riskless products. So from this kind of rational judgement, we can substantiate the answer as definite false.Also true investors in the market don't try to guess the market volatility which is actually very hard to predict. Instead they tend to make go investment irrespective of the market scenario.