1887

n Investment Analysts Journal - Forecasting volatility on the JSE

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Abstract

Economics, as a school of thought, is chiefly concerned with the optimal allocation of scarce resources in an attempt to maximise (or minimise) some function. In the large sub-school of financial economics, the scarce resource is capital, the goal is to maximise the asset base and the optimal allocation happens chiefly through the financial markets. The correct discriminator for the allocation of capital, given the maximisation function, is the rate of growth (or return) it offers. However, as the allocations inevitably occur in an environment pervaded with uncertainty, an adjustment must be made for the risks associated with every return. The resultant risk-return relationship is at the heart of financial theory and practice, with higher, more certain returns always being preferred to lower, less certain returns. Financial economics then, as a sub-school of economics, reduces to the study of the risks and returns of the competing uses of capital.

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/content/invest/2008/67/EJC46809
2008-01-01
2016-12-05
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