All or Nothing - A Study of Optimal Investment Behavior with Regards to Risk and Return

Abstract

The financial crisis of 2007 and 2008 lead to great instability on the financial market as stock prices fell rapidly to then progressively increase again. Further on, in February 2015, Sweden experienced a negative repo rate for the first time. Under these rare economic circumstances, the evaluation of risk and return is crucial and private investors are presumed to pay attention to both. Hence, this thesis will evaluate the investment pattern among Swedish investors and determine if it has been efficient according to chosen financial theories. The thesis will contribute to the discussion of weather Swedish investors can be considered as rational and if the private capital is accurately allocated. The methods consisted of collecting data and processing it with relevant tools and programs. Data stretches from 2007 to 2016 and results were calculated with approaches taken from the modern financial theories. The study came to the conclusion that Swedish investors cannot be considered as rational when managing their private investments. The investments in risky assets are overexposed towards fluctuations in the stock market while bank deposits, which are the most common form of saving, can be considered as both risk-free and non-profitable. Stocks and bank deposits are the two most common financial investments, which leads to an “all or nothing” condition where investors either take on too much risk or none at all.