We Routinely Assume That Investors Are Risk-Averse Return-Seekers; I

question 293

Essay

We routinely assume that investors are risk-averse return-seekers; i.e., they like returns and dislike risk. If so, why do we contend that only systematic risk is important? (Alternatively, why is total risk not important to investors, in and of itself?)

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Definitions:

Return on Investment

A measure of the profitability of an investment, calculated as the net profit from the investment divided by the initial cost of the investment.

Dividends

Disbursements issued by a company to its shareholders, representing a share of the company's earnings distributed to its stock owners.

Standard Deviation

A statistical measure that quantifies the amount of variation or dispersion of a set of data points, widely used in finance to measure the volatility of investment returns.

Variance

In statistics, variance is a measure of how far a set of numbers is spread out from their average value. It's key in assessing variability and risk.