The Risk-Free Investment

Pascal Böni () and Tim Kröncke ()
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Pascal Böni: Tilburg University
Tim Kröncke: FHNW University of Applied Sciences and Arts Northwestern Switzerland

Chapter Chapter 7 in The Evidence-Based Investor, 2025, pp 99-109 from Springer

Abstract: Abstract The optimal combination of the global market portfolio and the alpha portfolio may result in a portfolio that is too risky for a particular investor. To meet individual risk preferences, investors may invest parts of their total portfolio into risk-free assets.Tailored investment In practice, the concept of a risk-free asset is ambiguous. Accordingly, investors may instead invest in a portfolio of near-risk-free assets, such as money market funds. We consider two types of investors to objectify the subjective term “risk”. First, an investor for whom standard deviation is a good measure of risk, and second an investor for whom the probability of loss is important.

Keywords: Risk management; Investment horizon; Time-variation of risk; Standard deviation; Downside risk; Probability of loss (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-88675-1_7

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DOI: 10.1007/978-3-031-88675-1_7

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