Nonsystematic risk

(redirected from Idiosyncratic Risks)

Nonsystematic risk

Nonmarket or firm-specific risk factors that can be eliminated by diversification. Also called unique risk or diversifiable risk. Systematic risk refers to risk factors common to the entire economy.

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.

Nonsystematic risk.

Nonsystematic risk results from unpredictable factors, such as poor management decisions, successful competitive products, or suddenly obsolete technologies that may affect the securities issued by a particular company or group of similar companies.

Portfolio diversification, which means spreading your investment among a number of asset subclasses and individual issuers within those subclasses, can help counter nonsystematic risk.

References in periodicals archive ?
The work of Easley, Kiefer, and Possen (1993) develops a stylized two-period model where households face uninsurable idiosyncratic risks. Their findings suggest that, in general, when households face uninsurable risk in the returns to their human or physical capital, it is useful to tax the income from these factors and then rebate the proceeds via a lump-sum rebate.
Yet most would agree that these yields do not accurately reflect the idiosyncratic risks that exist within a servicing portfolio.
For example, if investors are subject to large idiosyncratic risks in their labor income and can share these risks only indirectly by trading a few assets such as stocks and Treasury bills, their individual consumption paths may be much more volatile than aggregate consumption.
(6.) See Kjetil Storesletten, Chris Telmer, and Amir Yaron, "Accounting for Idiosyncratic Risks over the Life Cycle: Theory and Evidence," Carnegie-Mellon University, unpublished manuscript, 2000.
Campbell and Fisher study how producers' idiosyncratic risks affect an industry's aggregate dynamics in an environment in which certainty equivalence fails.
We currently expect the favorable consumer backdrop to support healthy low-to-mid single-digit revenue growth across the US Leisure sector into 2019, notwithstanding company-specific idiosyncratic risks.
The bank faces realistic aggregate and idiosyncratic risks in the form of problem loan processes and deposit growth.
Moody's has identified two idiosyncratic risks which could affect the
Alternatively, the vega effect of ESOs provides CEOs with an incentive to engage in corporate activities that are associated with different types of risk, systematic and idiosyncratic risks (Tian, 2004; Duan and Wei, 2005; Armstrong and Vashishtha, 2012).
Cat bonds represent idiosyncratic risks, diversifiable at the world level.
One suggested explanation is that investors are concerned about idiosyncratic risks to their labor income, such as the risk of a layoff, and are reluctant to hold assets that do poorly at times when idiosyncratic risks increase.
idiosyncratic risks. Further material growth in systemic risk, as