To investigate the influence of unsystematic risk on the returns of securities, we have segregated the total risk into two parts systematic and nonsystematic risks
and check the significance of both factors independently.
Several studies found that some nonsystematic risks
also have effects on timberland investment returns.
H2: There is a significant relationship between low quality smoothed profits and the company's nonsystematic risks.
In other words, the objective of the study is to investigate the relationship between nonsystematic risk and smoothed profits (high-quality and low-quality).
According to Portfolio theory, nonsystematic risk can be reduced by diversification of the stock portfolio.
The main point in the present study is to find out the kind of relationship between profit smoothing and the quality of reported revenues along with nonsystematic risk.
However, because we assume that all idiosyncratic or nonsystematic risks
can be diversified away, no other information beyond the counterparties' country, industry, and rating (for example, the counterparties' segmentation criteria) is useful in determining their joint default correlation.
, by contrast, are specific to individual assets and can be reduced by diversification, or they can be eliminated surgically, one loan at a time.