# The Risk-Return Curve

The higher the risk, the higher the prospective return. That is, it makes no sense to assume more risk if the returns are not going to be higher.

Positive events lead to increased optimizism, which makes people more risk-tolerant. The increase in risk-tolerance results in lower risk premiums to be demanded, and this reduction results in lower demanded returns on risky assets. The price of risky assets rise, making them even riskier (people chasing momentum stocks).