What do you think would happen to the expected return on stocks if investors perceived higher
QUESTION
What do you think would happen to the expected return on stocks if investors perceived higher volatility in the equity market? Relate your answer to equation 7.5.
Volatility measures the dispersion of a stock from its mean or from its expected return. Now the best way to measure a stock volatility is through the standard deviation which indicates that how much a stock is deviating from its mean or expected value. If the investors perceive higher degree of volatility then
e stocks deviation would be in a scattered mode from its mean or expected return and the risks associated with the stock would be more than when the dispersion is small during a tight bunch of prices of stocks.
ANSWER:
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