Idiosyncratic Risk

Idiosyncratic Risk

Unsystematic risk or risk that is uncorrelated to the overall market risk. In other words, the risk that is firm-specific and can be diversified through holding a portfolio of stocks.

Nonsystematic Risk

Risk that is unique to a certain asset or company. An example of nonsystematic risk is the possibility of poor earnings or a strike amongst a company's employees. One may mitigate nonsystematic risk by buying different of securities in the same industry and/or by buying in different industries. For example, a particular oil company has the diversifiable risk that it may drill little or no oil in a given year. An investor may mitigate this risk by investing in several different oil companies as well as in companies having nothing to do with oil. Nonsystematic risk is also called diversifiable risk. See also: Undiversifiable risk.
References in periodicals archive ?
There will always be some who have prospered in such an environment but only by assuming a lot of idiosyncratic risk - basically making a large bet on one very specific market outcome.
Emphasize the role of three features:(i) asymmetric information in interbank markets;(ii) maturity mismatch in the banks balance sheets;(iii) the paradox of securitization, thereby a deeper diversification of idiosyncratic risk leads to a simultaneous increase in the sensitivity of banks balance sheets to aggregate risk.
Using four different proxies for a firm's investor base we demonstrate that idiosyncratic risk premiums are larger for neglected stocks and smaller or economically insignificant for visible stocks.
With heterogeneous trading technologies, households' total incomes differ not only because of their idiosyncratic risk in labor income but also because of the variations in their investment returns resulting from the heterogeneity in trading technologies.
Baum, Stephan, and Talavera (2009) estimate idiosyncratic risk by calculating the standard deviation of the closing price of the firm's shares.
An approach to the management of uncertain future longevity, presented in Piggott, Valdez, and Detzel (2005), is referred to as group self-annuitization (GSA), which is designed to pool idiosyncratic risk with individuals bearing systematic risk.
Table 3 reports that firm with high systematic risk and idiosyncratic risk have lower Qs.
In this research, taking Taiwan stock market as an example and collecting data from 2000 to 2010 which contained the 2001 dot-com bubble and the 2007-2009 financial crisis, we adopted the CoVaR model to empirically explore the impact of sector-specific idiosyncratic risk on the systemic risk of the whole financial system and attempt to investigate the links between financial crises, systemic risk, and the idiosyncratic risk of a sector-specific anomaly.
Treasury's $37 Billion TARP Share Sale," asks if the government would have had less downside and idiosyncratic risk by selling a significant fraction of its holdings of its underwritten offering early in the selling period.
But this is a challenging task, because inequality often arises from a mixture of heterogeneity and idiosyncratic risk, making the two difficult to disentangle.
The first type, name concentration, relates to imperfect diversification of idiosyncratic risk in the portfolio either because of its small size or because of large exposures to specific individual obligors.
CRISIL Global Research & Analytics (GR&A), the world's largest and top-ranked provider of high-end research and analytics services, believes the results of the Federal Reserve's Comprehensive Capital Analysis and Review (CCAR) 2014 underscore the importance of robust internal models and scenarios to account for idiosyncratic risk exposures.