Which factors should influence the risk and return analysis of an investor buying shares on the London Stock Exchange?

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ACKNOWLEDGEMENT

No words can express my appreciation and gratitude to my research advisor _______ through the course of this research, Professor _____has taught me numerous values that extend well beyond the realm of _________ (Your Subject Name). His emphasis on dedication to work and his valuable and practical insights of life are some of the major highlights of my education at The University _________.

DECLARATION

I [type your full first names and surname here], declare that the contents of this dissertation/thesis represent my own unaided work, and that the dissertation/thesis has not previously been submitted for the academic examination towards any qualification. Furthermore, it represents my own opinions and not necessarily those of the University.

Signed __________________ Date _________________

TABLE OF CONTENTS

ACKNOWLEDGEMENTII

DECLARATIONIII

CHAPTER 2: LITERATURE REVIEW1

2.1 Relationship of Risk and Return1

2.2 Risk and return analysis2

2.3 Return for an investor2

2.4 Efficient market hypothesis3

2.5 Portfolio theory and investor risk management4

2.6 Strategies of investors for risk and return analysis6

2.6.1 The CAPM model of risk and return analysis6

2.6.2 Asset Pricing Model of risk and return analysis6

2.6.3 Arbitrage Pricing Theory (APT) of risk and return analysis7

2.7 Factors effecting stock risk and return7

2.7.1 Risk of change in the foreign exchange rate8

2.7.2 the impact of change in the industrial growth rate9

2.7.3 The risk of inflation10

2.7.4 The risk of change in interest rate10

2.8 The impact of interest rate on stock prices in the LSE11

2.9 The impact of macroeconomic news on the stock prices in LSE12

2.9.1 The impact of inflationary news on stock prices12

2.9.2 The impact of change in money supply on stock prices12

2.9.3 The impact of change in economic activities on stock prices13

2.9.4 The impact of change in monetary policy on stock prices13

2.9.5 The impact of change in oil prices on stock prices13

2.9.6 The impact of change in consumption on stock prices13

2.9.7 The impact of speculation risk on stock prices14

2.10 The impact of unexpected macroeconomic news on the stock market returns and price14

2.11 Characteristics of the firm that could affect risk and return analysis14

2.11.1 The dividend policy of the firm14

2.11.2 The growth earning of the firm15

2.11.3 The size of the firm16

2.11.4 Firms final product and market16

2.11.5 Market risk of the firm17

2.11.6 Valuations ratios17

2.11.7 The financial strength of the firm17

REFERENCES19

CHAPTER 2: LITERATURE REVIEW

This dissertation is focusing on the factors that could affect the risk and return analysis of an investor, who is going to make an investment in the London Stock Exchange. The risk-return tradeoff is one of the pillars of finance theory. It is strongly believed that the more risk the rational investor takes on, the more reward he or she will demand. The equity risk premium provides a measure of the trade-off that is in the centre of interest to both academics and practitioners. Engle and Rangel (2004, 14) calls the equity risk premium as perhaps the single most important number in financial economics. This section of my dissertation will summarize the relevant information in the literature on the relationship between risk and return on ...