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 _________________

ABSTRACT

The relationship between the expected return and risk has been a central research area in finance. It has been widely recognized that risky investment yields higher expected return than investment free of risk. This dissertation had studied the factors that can make an affect on the risk and return analysis of an investor. According to Markowitz portfolio theory, an investor would always require the maximum amount of risk at a given level of risk and for this purpose; he proposed a model that allowed investor to yield maximum return in his portfolio through investment in diverse assets. The findings from the review of literature had helped us discover the factors that could affect the risk and return decision of an investor. Through our research through questionnaire analysis, we were able to validate out findings from the review of literature. These factors consist of both firm specific factors and economic factors.

TABLE OF CONTENTS

ACKNOWLEDGEMENTII

DECLARATIONIII

ABSTRACTIV

LIST OF CHARTS AND TABLESIX

CHAPTER 1: INTRODUCTION1

1.1 Background of the study1

1.2 Introduction3

1.3 Problem statement5

1.4 Aims and objectives of the research5

1.5 Research questions5

1.6 Rationale of the study6

1.7 Significance of the study6

1.8 London Stock Exchange6

CHAPTER 2: LITERATURE REVIEW8

2.1 Relationship of Risk and Return8

2.2 Risk and return analysis9

2.3 Return for an investor9

2.4 Efficient market hypothesis10

2.5 Portfolio theory and investor risk management11

2.6 Strategies of investors for risk and return analysis13

2.6.1 The CAPM model of risk and return analysis13

2.6.2 Asset Pricing Model of risk and return analysis13

2.6.3 Arbitrage Pricing Theory (APT) of risk and return analysis14

2.7 Factors effecting stock risk and return14

2.7.1 Risk of change in the foreign exchange rate15

2.7.2 The impact of change in the industrial growth rate16

2.7.3 The risk of inflation17

2.7.4 The risk of change in interest rate18

2.8 The impact of interest rate on stock prices in the LSE18

2.9 The impact of macroeconomic news on the stock prices in LSE19

2.9.1 The impact of inflationary news on stock prices19

2.9.2 The impact of change in money supply on stock prices20

2.9.3 The impact of change in economic activities on stock prices20

2.9.4 The impact of change in monetary policy on stock prices20

2.9.5 The impact of change in oil prices on stock prices20

2.9.6 The impact of change in consumption on stock prices20

2.9.7 The impact of speculation risk on stock ...