ECON102 Lecture Notes - Lecture 23: Fundamental Analysis, Ebay, Open Economy

• School: University of Alberta
• Department: Economics
• Course: ECON102
• Professor: Andrew Wong

Document Summary

Econ 102 lecture 23 risk, return, and the e cient market hypothesis. The most basic method of valuing an asset is analyzing the trade-o between risk and return. However, risk is very hard to quan2fy. We usually use vola9lity to represent it. The more vola2le a certain asset (or price of an asset) is, the riskier it is. However, this can be very misleading or underes2ma2ng (as demonstrated below) Essentially, if you were to look at this graph, you would likely infer that to make the most money you would have to take the greatest risk. However, this misrepresents or downplays the severity of the risk, which can be very bad in many cases. (graph from chapter 13. pptx , slide 24) There is a clear correla2on between the risk and expected return of nancial assets. Assets such as cash and xed income bonds carry very low risk and reward.