Facts and Fictions in The Securities Industry 1st edition


Common Investment Schemes



Download 1.04 Mb.
Page24/84
Date24.05.2021
Size1.04 Mb.
1   ...   20   21   22   23   24   25   26   27   ...   84
2. Common Investment Schemes

The credit and banking crisis of 2007-9 has cast in doubt the three pillars of modern common investment schemes. Mutual funds (known in the UK as "unit trusts"), hedge funds, and closed-end funds all rely on three assumptions:



Assumption number one

That risk inherent in assets such as stocks can be "diversified away". If one divides one's capital and invests it in a variety of financial instruments, sectors, and markets, the overall risk of one's portfolio of investments is lower than the risk of any single asset in said portfolio.

Yet, in the last decade, markets all over the world have moved in tandem. These highly-correlated ups and downs gave the lie to the belief that they were in the process of "decoupling" and could, therefore, be expected to fluctuate independently of each other. What the crisis has revealed is that contagion transmission vectors and mechanisms have actually become more potent as barriers to flows of money and information have been lowered.



Share with your friends:
1   ...   20   21   22   23   24   25   26   27   ...   84




The database is protected by copyright ©essaydocs.org 2020
send message

    Main page