Systemic Risk

(redirected from Non-Diversifiable Risk)

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 ?
The indemnification and risk pooling properties of insurance facilitate commercial transactions and the provision of credit by mitigating losses as well as the measurement and management of non-diversifiable risk more generally.
For a given project, an investor must be compensated for non-diversifiable risk characterized by the correlation between the return on the project and the return on the overall market portfolio.
they reveal that, compared to a sample of unaffected firms, non-diversifiable risk decreases for affected firms.
In this sense, TPI is excess return as a percentage of non-diversifiable risk or systematic risk, whereas the SPI is indexed on total risk (excess return relative to total firm risk).
pt] is the variability in return consisting of diversifiable risk and non-diversifiable risk.
The first part of formula (10) describes non-diversifiable risk, while the second one describes a diversifiable risk.
From a finance perspective, the distinction between pure and speculative risk blurs because the rate of return shareholders require depends on its non-diversifiable risk (systematic risk) or core risk, which can include pure and speculative risk components, investors do not accept a lower rate of return for the stock of a firm that does, through a risk management program, what the shareholders can do for themselves at lower cost through portfolio diversification.
Next we examine whether the excess currency returns (deviation from UIRP) is due to non-diversifiable risk.
Non-diversifiable risk is also called market risk because it is a function of general environmental conditions which affect an investment in the whole stock market, such as inflation and taxation and interest rate changes.
If option listing increases (reduces) non-diversifiable risk, c would be positive (negative).
Significant use of debt financing may result in a substantial increase in the firm's bankruptcy risk and an increase in the non-diversifiable risk of bankruptcy to managers themselves.
3) One result of the Markowitz-Miller-Sharpe contributions was the Capital Asset Pricing Model (CAPM), which measures the required return to assets and securities by a risk-free rate plus a risk premium calculated by the product of the market price of risk times a measure of the non-diversifiable risk of the returns to the individual asset or security.