Discuss the potential impact of a financial crisis, such as the European debt crisis or COVID-19, or the Russia-Ukraine conflict, on the allocation decision of individual investors in the first stage of the investment process. Relate your discussion to the topics that you have learned in this unit, particularly investor preferences (indifference curves), optimal risky portfolios (CML) and asset pricing (SML). Use the diagrams to illustrate how the common risk-return relationships proposed by the portfolio and asset pricing theories would change after a financial crisis.

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The potential impact of a financial crisis whether it be the European debt crisis COVID19 or the RussiaUkraine conflict can significantly alter the al... View the full answer