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Risk and Return in Financial Decision-Making: Theoretical Foundations and Practical Applications

Amina El-Sayed

Received 20 Apr 2026, Published online: 30 Jun 2025

Published in Volume 5, Issue 1, 2025, pages 1-3

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Abstract

This paper explores the intricate relationship between risk and return in financial decision making. Drawing from both classical financial theory and behavioral economics, the study evaluates how individuals and institutions make investment choices under uncertainty. The article delves into various models such as the Capital Asset Pricing Model (CAPM), Modern Portfolio Theory (MPT), and Prospect Theory to explain investor behavior. Empirical evidence suggests that while higher risk is generally associated with higher returns, investor biases, market anomalies, and psychological factors often lead to suboptimal financial decisions. This paper synthesizes current research and suggests best practices for balancing risk and return in investment portfolios.

Keywords

  • Risk
  • Return
  • Financial Decision-Making
  • CAPM
  • Modern Portfolio Theory
  • Behavioral Finance

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© 2025 Journal of Magnetism and Its Applications. This article is published under CC BY 4.0.

How to cite

Amina El-Sayed , A. E. S. (2025). Risk and Return in Financial Decision-Making: Theoretical Foundations and Practical Applications. Journal of Magnetism and Its Applications, 5(1), 1-3.

How to Cite

Risk and Return in Financial Decision-Making: Theoretical Foundations and Practical Applications. (2025). Journal of Magnetism and Its Applications, 5(1), 1-3. https://jourmag.org/index.php/jma/article/view/131