Management and Organizational Studies 2310A/B Chapter Notes - Chapter 10: Investment, Standard Deviation, Market Capitalization

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2310A/B
• Professor: Danny Morrison

Document Summary

Chapter 10: risk and return in capital markets. Computing historical returns: realized return: the total return that occurs over a particular time period. Average annual returns: average annual return: an average of the realized returns each year, rt is realized return of a security in each year t. the average annual return is for year 1 through t. 10. 3: historical trade- off between risk and return. The returns of large portfolios: average return versus volatility of each investment investments with higher volatitily (measured with sd) have rewarded investors with higher returns. The same can be said for stocks of smaller companies in comparison with a portfolio of these companies: most individual stocks have lower returns and or higher risk than the portfolios. **while volatility (standard deviation) seems to be a reasonable measure of risk when evaluating a large portfolio, the volatility of an individual security does not explain the size of its average return.