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Analyzed relationship between risks and expected returns

Doan Van Dinh (Faculty of Finance and Banking, Industrial University of Ho Chi Minh City (IUH), Ho Chi Minh, Vietnam)

Journal of Economic and Administrative Sciences

ISSN: 1026-4116

Article publication date: 13 September 2021

Issue publication date: 20 November 2023

324

Abstract

Purpose

This study aims to investigate the relationship between risks and the expected return of financial investment because the relationship between them is negative; if the investors agree to the higher level of risk, they have the greater the expected return; therefore, investors always require a degree of proportionality between the risks and returns.

Design/methodology/approach

This study applied the standard deviation, variance, coefficient of variation methods and matrix function to measure risks. Besides, the dataset is a return on equity ROE, which is collected in three companies at time series from 2005 to 2020.

Findings

When the variance or the standard deviation is higher, the return on the securities is higher, but the securities are a higher risk and vice versa. The results showed risk levels of stocks that are 2.509%, 0.367%, 3.666% and the corresponding return mean of 38.68%, 23.99% and 14.02%.

Originality/value

The results support the portfolio management policy appropriately. This study identifies issues for managers, investors and readers to consider: have a comprehensive solution among microcosmic policies, finance policy, investment policy and other policies to control and balance the relationship between risks and returns; have appropriate policies to regulate funds to stimulate investment in the long term.

Keywords

Acknowledgements

The author would like to thank a board of directors at the Industrial University of HCM City for finance funding. Similarly, the author would like to thank the reviewers for their exceptionally insightful comments, which helped improve this article.

Declaration of interest statement: I hereby declare that I have no pecuniary or other personal interest, direct or indirect, in any matter that raises or may raise a conflict with my duties as an author.

Citation

Van Dinh, D. (2023), "Analyzed relationship between risks and expected returns", Journal of Economic and Administrative Sciences, Vol. 39 No. 4, pp. 749-759. https://doi.org/10.1108/JEAS-05-2021-0088

Publisher

:

Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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