Insurance hypothesis is a means whereby the investor can guarantee the success of their investment.

Question

Quizplus · Accepted Answer

The insurance hypothesis is a theory that suggests that investors cannot guarantee the success of their investment through diversification alone because all asset classes are correlated to some extent. Therefore, insurance through options or other hedging strategies may be necessary to protect against unexpected market movements. However, this does not guarantee the success of the investment, but rather reduces the risk of loss.

Insurance Hypothesis Is a Means Whereby the Investor Can Guarantee