Systematic risk

Systematic risk

Also called undiversifiable risk or market risk. A good example of a systematic risk is market risk. The degree to which the stock moves with the overall market is called the systematic risk and denoted as beta.

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.

systematic risk

Risk caused by factors that affect the prices of virtually all securities, although in different proportions. Examples include changes in interest rates and consumer prices. Although it is not possible to eliminate systematic risk through diversification, it is possible to reduce it by acquiring securities (for example, those of utilities and many blue chips) that have histories of relatively slowly changing prices. Also called market risk, nondiversifiable risk. Compare unsystematic risk. See also beta.

Systematic risk.

Systematic risk, also called market risk, is risk that's characteristic of an entire market, a specific asset class, or a portfolio invested in that asset class.

It's the opposite of the risk posed by individual securities in a class or portfolio, also known as nonsystematic risk. The predictable impact that rising interest rates have on the prices of previously issued bonds is one example of systematic risk.

References in periodicals archive ?
Singapore's deputy prime minister, Tharman Shanmugaratnam, had said in early February that there were 'no systematic risk concerns' posed by cryptocurrencies.
SELLOFF MAY BE EXCESSIVE: Meanwhile, Morgan Stanley analyst Ken Zerbe argued in a research note of his own that if indeed Citizens Bank proves to be at fault, it appears to be more of an isolated event rather than a systematic risk management problem.
If we see a systematic risk in the financial system, we will make sure the government intervenes," he said.
However, the various empirical studies like Hogan and Warren (1974), Bawa and Lindenberg (1977), Harlow and Rao (1989) and Estrada (2002) claimed that investors are more concerned about the downside systematic risk and have least concern regarding the upward fluctuations.
In developed countries, the cost of equity is usually determined on the basis of Capital Asset Pricing Model--CAP M (Sharpe, 1964; Litner, 1965) according to which in the state of market equilibrium investors expect return from the security proportional to its systematic risk.
According to the FSB, IMF and BIS reports (FSB, IMF and BIS, 2011), prudent analysis, the more important part of prudential supervision, is able to analyze systematic risk by existing data, quantitative analysis of the method, and to provide appropriate advice and recommendations to the regulatory authorities.
After the reform, streamlined participants' portfolios also held "significantly less equity and exhibited significantly lower risks," mainly due to reduced exposures to systematic risk factors as compared with "non-streamlined counterparts.
The National Climate Change Committee, for example, is being advised in the development of systematic risk analyses to identify susceptible coastal zones in the country and to increase their resilience to climate change.
Both the capital asset pricing model (CAPM) which is based on systematic risk and the risk premium approach which is based on unsystematic risk, have been used to compute expected returns.
test the existence of systematic risk contagion within the Chinese interbank market with a particular data set from 2005 to 2013.
Moreover, after the reform, streamlined participants' portfolios held significantly less equity and exhibited significantly lower risks by way of reduced exposures to most systematic risk factors, compared to their non-streamlined counterparts.
Although there is an extensive body of research focused on the return-earnings relation, Basu (2005) and Chambers, Freeman and Koch (2005) argue that empirical evidence on the ERC sensitivity to systematic risk is controversial.

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