Suppose the market risk premium is currently 6%. If investors were to become more risk-averse, the market risk premium might increase to 8%. If investors become more risk-averse, what effect would you expect this to have on the prices of financial assets?
Prices would increase?
Prices would be unaffected?
Prices would decrease?
When investors are more risk averse, market risk premium will increase and hence the ...
This post answer a simple question on how the degree of risk aversion would impact the prices of financial assets.