Returns, Risk, and Financial Due Diligence

FINANCE ETHICS, J. R. Boatright, ed., New York: Wiley, 2010

Posted: 4 Aug 2009 Last revised: 21 Dec 2014

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.

J.B. Heaton

Bartlit Beck Herman Palenchar & Scott LLP

Date Written: July 16, 2009

Abstract

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.

Suggested Citation

Culp, Christopher L. and Heaton, J.B., Returns, Risk, and Financial Due Diligence (July 16, 2009). FINANCE ETHICS, J. R. Boatright, ed., New York: Wiley, 2010. Available at SSRN: https://ssrn.com/abstract=1435163 or http://dx.doi.org/10.2139/ssrn.1435163

Christopher L. Culp (Contact Author)

Johns Hopkins University - Institute for Applied Economics, Global Health, and Study of Business Enterprise ( email )

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Swiss Finance Institute ( email )

c/o University of Geneva
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Switzerland

Compass Lexecon ( email )

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Chicago, IL 60604
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Risk Management Consulting Services, Inc. ( email )

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J.B. Heaton

Bartlit Beck Herman Palenchar & Scott LLP ( email )

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54 West Hubbard Street
Chicago, IL 60610
United States
312-494-4425 (Phone)
312-494-4440 (Fax)

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