The greater risk theory supposes that the value premium is due to unobserved risk within those securities, such as hidden financial distress or illiquidity in the marketplace.
The data may fit the theory, but there is always the risk of the theory not working in reality.
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The additional capital requirements in combination with enhanced risk management standards, in theory should lead to reduced risk of bank failures, and should decrease the interdependence between financial institutions, effectively reducing the risk of future banking crises.
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But little evidence has yet emerged that Mr Hu, or indeed the author of the theory, is enough of a risk-taker to push the new theory that far.
Portfolio theory defines risk only as volatility, or the extent to which returns can vary from average.
In theory, that risk should have been borne by the people best able to carry it.
LTCM, Enron was admired for its innovative use of financial theory and for its risk-management skills until it was too late.
These professionals use mathematics, statistics, and financial theory to assess the risk that an event will occur and to help businesses and clients develop policies that minimize the cost of that risk, according to the Bureau of Labor Statistics website.
In theory, even a slight risk of redenomination ought to justify taking every last euro out of the bank, whether stashing it under the mattress or abroad.
What all three have done, in differing degrees, is to swap innovation for execution, which should, in theory at least, lower risk and make it quicker to get to market.
In theory, most vulnerable to the risk that borrowing will become a bit harder and pricier are those in the bottom category of banks, which includes RBS. But RBS can take small comfort that some very big banks - notably Bank of America Corporation and Citigroup of the US - have lower ratings than it does.
In fact, no one knows what causes these symptoms in most babies, and in most of these cases, it seems that doctors are essentially administering a placebo to treat the anxieties of the parents, and doing little to help the child and in theory exposing them to a very slight risk of harm, although these are generally thought to be exceedingly safe medications.
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Economic theory says that when investors take on extra risk, they ought to be rewarded with higher returns.
One theory is based on the presumption of higher risk in value stocks and the other is based on mispricing of securities.
In theory, this helps the banks to reduce risk, makes money for intermediaries who trade the securities, and allows the investors to pick tranches of debt that match their risk appetite.
The theory was that slicing and dicing mortgages diluted the risk away.
The so-called advances in organizational design theory have been so grossly over-weighted toward risk management, organizations are now built to prevent failure rather than encourage success.
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In theory, these bets promised large profits at little risk: MF Global revealed the basic components of its European bet in May, prompting no evident concern in markets.
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This proposition comes directly from economic theory, which says that people respond to the risk of dying not by shortening their planning horizon and blithely assuming they will die right on time, but by choosing to consume somewhat more when young and somewhat less when old, if they do end up living longer than expected.
The CAPM theory assumed that the portfolio would hold an amount of risk free assets plus it would embrace all risky assets weighted by their market capitalization.
The theory for the very significant discount was based on the risk that a hypothetical speculative buyer would be taking given that the Elkins did not want the artwork to be sold.
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Every drop of saliva you leave on a Styrofoam coffee cup or hair follicle that falls to the floor contains DNA that in theory can be tested for everything from ancestry to disease risk.
The classical theory of the rational, economic man would have him avoid risk and thereby avoid the coin flip.
That is not bad for a risk-free asset with a maturity of one to six years in theory, and often only a few months in practice.
In theory, ratings agencies and mathematical models help investors price the risk they are taking on, even if the securities they are buying are scarcely traded.
Modern portfolio theory dictates that to reap higher returns, investors must assume greater risk.
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The performance bonus from minimizing risk for a given level of return (a key tenant of modern portfolio theory) has also been reduced.
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And the great majority of investment advisers claim they base decisions on this theory, which falls short when it comes to accounting for the risk of borrowed money.
In theory, the derivatives markets have strengthened the financial system, by allowing risk to be dispersed away from the banks.
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