Question

Which is better for investors -- stocks that can rise in price over a relatively short...

Which is better for investors -- stocks that can rise in price over a relatively short period of time or stock where the price is relatively stable but pays dividends over the long term?

Homework Answers

Answer #1

The answer depends on the risk aversion of the investor.

Lets consider a risk averse investor:

Stocks which rise in price over relatively short period of time will have huge volatility which can go both ways that is price can also fall over short period of time. Thus, Sharpe ratio might be smaller.

Stocks which pay dividends over long term are stable and are good to invest because their price would not fall much.

Better for investors: stock where the price is relatively stable but pays dividends over the long term

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