Since the undiversifiable risk
of international lending is considerably high, lenders' portfolio decisions should be based on the impacts of lending on the risk of lender's bankruptcy.
market that have an amount of undiversifiable risk
comparable to the
(109) To induce a reduction in risk taking, returns to undiversifiable risk
, as well as supernormal returns, could be taxed by imputing and exempting interest on equity at a riskless rate.
We identify three conditions that explain this result: (1) insurance contracts are priced competitively, (2) financial prices include a risk premium only for undiversifiable risk
, and (3) financial markets are effectively complete.
(3) That part of the risk of a stock that can be eliminated is called diversifiable risk, while that part that cannot be eliminated is termed market risk, or undiversifiable risk
However, because of the "stickiness" of regulated insurer capital, catastrophe risk should be considered as an undiversifiable risk
, both within individual insurers and across the insurance and reinsurance markets.
In this case, the insurer would charge each client only for operating costs (C) and the undiversifiable risk
that client imposed on insurance reserves and these charges would allow the insurer to maintain an optimal fund of explicit reserves and intangible taxpayer catastrophic support.
The estimated standard deviation for the new portfolio is 1.0044%, the undiversifiable risk
for the internationally diversified portfolio is much lower than that for either the domestic portfolio or the ADRs portfolio.
Spackman (no date) of the UK Treasury tried estimating the undiversifiable risk
after optimal pooling of projects, which is correlated with incomes or wealth of taxpayers and thus imposes some positive cost of risk-bearing on taxpayers.(16) When estimating the cost of risk-bearing for taxpayers, he finds that it affects the discount rate -- estimated at some 6 per cent annually in real terms -- only marginally, adding 0.1 per cent.(17) The discount rate of small countries or countries with a small tax base would, of course, be affected more dramatically.
Typically, managers do not tender their personal shares in TOSRs, which increases their personal undiversifiable risk
(Ofer and Thakor, 1987).
The measure is also conservative in that while having options increases the undiversifiable risk
that managers must bear, the valuation of those options is positively related to the riskiness of the stock.
The greater the undiversifiable risk
becomes, the more domestic savers reduce their holdings of X assets, and the greater is the share of investment in X done by foreign savers.