Respuesta :
a reduction in investor risk aversion will increase a firm's price-earnings ratio.
Risk averse investor :
The term risk-averse describes the investor who chooses the preservation of capital over the potential for a higher-than-average return. In investing, risk equals price volatility. A volatile investment can make you rich or devour your savings. A conservative investment will grow slowly and steadily over time.
Why is an investor risk-averse?
Risk-averse investors prioritize the safety of principal over the possibility of a higher return on their money. They prefer liquid investments. That is, their money can be accessed when needed, regardless of market conditions at the moment.
Price - earning ratio :
The price/earnings ratio, also called the P/E ratio, tells investors how much a company is worth. The P/E ratio simply the stock price divided by the company's earnings per share for a designated period like the past 12 months. The price/earnings ratio conveys how much investors will pay per share for $1 of earnings.
What is high PE ratio?
A high P/E could mean that a stock's price is high relative to earnings and possibly overvalued. Conversely, a low P/E might indicate that the current stock price is low relative to earnings. However, companies that grow faster than average typically have higher P/Es, such as technology companies.
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