Question

Why or why not is it a smart investment strategy to only buy assets with high...

Why or why not is it a smart investment strategy to only buy assets with high betas?

Homework Answers

Answer #1

Buying assets with high betas is basically a high risk strategy. In the periods of upmove, you will gain a lot but in periods of down move, you will also lose a lot. Beta is basically the ratio of the movement in the asset's price to the movement in the market. Hence, if the beta of the asset is high, it means that the asset's price will move in the same direction as the market but a lot more than the market. Hence, it basically serves to amplify your returns whether in positive or negative direction. That's why this is not a smart investment strategy.

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