Investors are particularly averse to the possibility of even a very small loss and need a high return to compensate for it. Such a concept is related to what theory?
A) Market efficiency theory
B) Random walk theory
C) Convergence trading
D) Prospect theory

Question

Quizplus · Accepted Answer

This concept is related to Prospect theory, which suggests that individuals tend to be risk-averse when it comes to gains, but are willing to take risks when it comes to losses. Investors require a higher return to justify taking on any potential losses, which is consistent with the "loss aversion" aspect of Prospect theory.

Investors Are Particularly Averse to the Possibility of Even a Very