Abstract
There is a close relationship between the risk attitude of the investor and investment choices. This means that the relationship between perceived risk and expected return is just as close. The concept of risk is therefore associated with the particular investor who in any case, regardless of a personal special aptitude, behaves in such a way as to minimize the uncertainty related to the activity to be undertaken. In this sense, the strategy of the investor becomes paramount. For this purpose, this chapter shows the basic steps of decision-making and the analysis activities that should guide the choice of the investor along this path.
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Notes
- 1.
Mertz et al. (1998) and Slovic (2000) have shown that individuals rarely conceive risk as something objective and measurable. In addition, people have a tendency to avoid riskier alternatives. Ganzach (1999) stated that the report risk/return varies from subject to subject and in relation to particular situations, it may occur, therefore, that in some cases a higher risk does not correspond to a higher return. Otherwise MacGegor et al. (1999) assert that the equation risk/return is one of the decisive factors in the choice of investment, even if they demonstrate the existence of an asymmetry in the way in which the risk and the return affect this decision. People seem more willing to invest on the basis of expected returns rather than on the basis of the degree of risk inherent to a certain financial activity.
- 2.
Knight F.H. in the 20s published, in his book Risk, Uncertainty and Profit, the first economic definition of risk: The uncertainty should be considered in a sense radically distinct from the familiar notion of risk, […]. The essential fact is that “risk” means in some cases a quantity which can be measured, it will be understood that measurable uncertainty, or properly “risk” is so much different from a non-measurable uncertainty, which in fact is not an uncertainty.
- 3.
For example, the typical building contractor is a “real” promoter (in fact he mainly carries out the construction activity), and is generally directed to selling the property directly after completion.
- 4.
Please note that in countries where labor mobility is common (e.g. the USA), the decision of a family to transfer their residence depends not only on job prospects but also on the relative cost of the house (Zabel 2012).
- 5.
It may happen that the brokers are forced to mediation efforts and particular strategies, which obviously require a longer contract period (increase in the time of sale), from sellers that impose starting bid prices higher than the normal market values. This situation triggers a mechanism that brings—in normal cyclical phases—to higher selling prices (Anderson et al. 2013).
- 6.
Proof of the quality as a driver of demand can be provided by measuring the standard deviation of the real estate prices. This measure of the variability of prices in the cities is an indicator of the selectivity determined by the quality, with an increase in the demand for quality, so does the variability of prices. With reference to the last expansion cycle of the real estate market, to which an intense recovery and urban regeneration corresponds with projects often implemented through the work of famous architects, it can be seen that prices tend to differentiate more and more around their average values and for all types of real estate (Adair et al. 2003).
- 7.
The model was then developed by Wingo who added, to the underlying assumptions, the hypothesis relating to the effect of the “free time” marginal variable on the budget as well as on the level of satisfaction (Wingo 1961).
- 8.
The models of Alonso and Wingo have been refined over the years, starting from the original town of concentric ring, the newer models make reference to the case of two or more independent centers of equal or different sizes, competing or complementary: the urban form results from these analyses dependent both on the transport network and the relationships between the different urban centers.
References
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Manganelli, B. (2015). Investors and Investment Strategies. In: Real Estate Investing. Springer, Cham. https://doi.org/10.1007/978-3-319-06397-3_5
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DOI: https://doi.org/10.1007/978-3-319-06397-3_5
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