The Theory of Asset Selection under Conditions of Uncertainty

Abstract

In Chapter 3 we explored the principles of asset selection in the absence of risk, and in the following chapter we examined the nature of risk as it applies to the characteristics of assets. The next step is to explore the theory of asset selection where the returns on the assets in question are subject to some degree of risk. In this case the actual return on each asset will be a random variable since it will depend, in general, on uncertain events which may or may not occur in the future.