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Let the first- and second-period risky asset returns be given by random n-dimensional vectors of R 1,R 2, respectively.
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And as investors' hunger for riskier assets returns the attraction of government paper will fade, making refinancing, like net new borrowing, more expensive.
Our benchmark model of investment decisions (see Table 1) indicates that all else equal, participants invested significantly more money in the risky asset if its expected return was higher, the standard deviation of its return was lower, or if the return of the safe asset was lower.
This provides strong incentives to invest in highly leveraged risky assets, which yield higher average returns.
Who would buy a risky asset if the expected return was the same as the risk-free one?
Cut the risk they have to endure in stocks by diversifying abroad and investors become willing to own a larger portion of this risky asset class and thus enjoy greater returns over the long term.
It's the (x1 2, times the variance of the return on the first risky asset, plus (x2 2, times the variance of the return on the second risky asset, plus (x3 2, times the variance of the return on the third risky asset.
Venture capital is typically a risky asset class, but can produce outsized returns upon a successful liquidity event.
In one version of the task, subjects were informed that the risky asset would pay either of two possible returns with equal probability, and these two possible outcomes for the return were known by the subject in each trial.
Is 6% an adequate return on a risky asset during a period of 2.5% inflation?
The actual rate of return for the risky asset on any trial was not revealed until the end of the experiment.
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CEO of Professional Science Editing for Scientists @ prosciediting.com