Report Number

1993-103

Abstract

The apparent persistence of unexploited opportunities for expected profits in foreign exchange markets suggests extremely risk-averse market participants. A foreign exchange trader who faces favorable odds can make the probability of ruin arbitrarily small by betting a sufficiently small fraction of available wealth on each opportunity. The setting of a low value for the maximum acceptable probability of runin then provides a rationale for the trader behaving as if he or she has a high degree of risk aversion.

Keywords

Financial market, Risk

Date of this Version

1-1-1993

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