High Risk Investments

High-Risk Investments

By: Prisha Marwaha

FIN550: Corporate Investment Analysis

Dr. Glenn L. Stevens

August 29, 2013

Introduction

In their research study, Souder & Myles (2010) identify that risk is chiefly fundamental to investing. Böhringer & Löschel (2008) further add that there is no discussion of returns or performance that is deemed meaningful in the absence of at least some mention of the involved risk. However, the trouble for investors, who have just entered into the marketplace, involves the process of figuring where risk really lies, as well as what the difference between the various levels of risks. Relating to the manner, in which risk is fundamental to investments, a significant number of new investors tend to assume that risk is a well-defined and quantifiable idea. However, it is not the case. As such, a universally agreed definition of the term, and how it should be measured, has not been attained. Central to this paper are high-risk investments. It is a form of an investment where there is a larger percentage chance of capital loss or a high likelihood of underperformance. The purpose of this paper is to research high-risk investment brokerage firms that have been indicted or convicted of ethical violations to provide insight and understanding of this market segment. To realize this objective, the Internet will be used as the chief research method. The information sources will be derived from academic databases, such as Wiley Online Library and ProQuest.

The given paper is divided into six sections. The first section will attempt to explain why investors may be attracted to high-risk investments, such as exchange-traded derivatives, global funds, and other complex investment vehicles. The second section will concern the analysis of the risk associated with exchange-traded derivatives, such as futures and options, and what brokers might do to minimize the risk to investors. The third section will involve a...