Returns, Risk, and Financial Due Diligence
Christopher L. Culp
Johns Hopkins University - Institute for Applied Economics, Global Health, and Study of Business Enterprise; Swiss Finance Institute; Compass Lexecon; Risk Management Consulting Services, Inc.
Bartlit Beck Herman Palenchar & Scott LLP
July 16, 2009
FINANCE ETHICS, J. R. Boatright, ed., New York: Wiley, 2010
Financial due diligence is the process by which investors try to ascertain, among other things, the potential risks and returns of a contemplated investment. Both qualitative and quantitative methods are used to determine whether the investment offers a fair risk/return tradeoff (and what that tradeoff is). In this paper, we first review basic concepts of risk and return in financial economics with an eye toward the quantitative aspects of financial due diligence. We then illustrate the applications of these concepts in financial due diligence using the example of Bernard Madoff Investment Securities.
Date posted: August 4, 2009 ; Last revised: December 21, 2014