- when information is not widely available,
- when an investment is particularly complicated to analyze, or
- when investors buy and sell for reasons unrelated to value.
- because the financial markets are biased toward overvaluation and
- because it is difficult for market forces to correct an overvalued condition if enough speculators persist in overpaying.
- Also, unscrupulous operators will always make overpriced investments available to anyone willing to buy, they are not legally required to sell at a fair price.
In point of fact, greater risk does not guarantee greater return. To the contrary, risk erodes return by causing losses.
It is only when investors shun high-risk investments, thereby depressing their prices, that an incremental return can be earned which more than fully compensates for the risk incurred.
By itself risk does not create incremental return; only price can accomplish that.