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.
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.
