If investors' aversion to risk increased, would the risk ....?

Question

premium on a high-beta stock increase more or less than that on a low-beta stock?

Hello, I am an MBA student having some trouble grasping this, your help would be greatly appreciated.

Thanks in advance!!!

Answer 1

I believe the risk premium on a high beta stock would increase if aversion to risk increased among the entire universe of investors. beta is, after all, a measure of volatility. High beta stocks carry a higher risk than low beta stocks. A stock with a beta o 1.90 carries a risk of a much lower price than a stock with a beta of 0.90

To bring your question to a more personal level, I would avoid high beta stocks if my aversion to risk increased.

I wish you every success.

Answer 2

I don't think risk premium actually changes for a particular equity when considering the buyer's risk aversion.
In other words if I'm highly risk averse does the risk premium of INTC change if someone else with low risk aversion buys it?

In general the higher beta stocks will have more risk premium than the low-beta stock. The benefit of going with the higher risk stock needs to have more reward to make the risk worth it, especially for a risk averse investor.