Systemic Risk

(redirected from Non-Diversifiable Risks)

Systemic Risk

Risk common to a particular sector or country. Often refers to a risk resulting from a particular "system" that is in place, such as the regulator framework for monitoring of financial_institutions.

Systemic Risk

A risk that is carried by an entire class of assets and/or liabilities. Systemic risk may apply to a certain country or industry, or to the entire global economy. It is impossible to reduce systemic risk for the global economy (complete global shutdown is always theoretically possible), but one may mitigate other forms of systemic risk by buying different kinds of securities and/or by buying in different industries. For example, oil companies have the systemic risk that they will drill up all the oil in the world; an investor may mitigate this risk by investing in both oil companies and companies having nothing to do with oil. Systemic risk is also called systematic risk or undiversifiable risk.
References in periodicals archive ?
One of the basic issues in the choice of a model as a basis for the estimation of cost of equity and discount rates in general, when dealing with investments outside the domestic economy, is the perception of how integrated the particular overseas market is, and whether one should adjust a basic model for non-diversifiable risks, such as country risk, or similar manifestations of emerging market risks, such as political or currency risk.
Estimation results indicate that deviations from UIRP are indeed characterized by a time-varying component that is compensation for non-diversifiable risks.
Next we examine whether the excess currency returns (deviation from UIRP) is due to non-diversifiable risk.