unsystematic risk

Unsystematic risk

Also called the diversifiable risk or residual risk. The risk that is unique to a company such as a strike, the outcome of unfavorable litigation, or a natural catastrophe that can be eliminated through diversification. Related: Systematic risk.

Nonsystematic Risk

Risk that is unique to a certain asset or company. An example of nonsystematic risk is the possibility of poor earnings or a strike amongst a company's employees. One may mitigate nonsystematic risk by buying different of securities in the same industry and/or by buying in different industries. For example, a particular oil company has the diversifiable risk that it may drill little or no oil in a given year. An investor may mitigate this risk by investing in several different oil companies as well as in companies having nothing to do with oil. Nonsystematic risk is also called diversifiable risk. See also: Undiversifiable risk.

unsystematic risk

The risk that is specific to an industry or firm. Examples of unsystematic risk include losses caused by labor problems, nationalization of assets, or weather conditions. This type of risk can be reduced by assembling a portfolio with significant diversification so that a single event affects only a limited number of the assets. Also called diversifiable risk. Compare systematic risk.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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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.

TWO-PASS MODEL OF CAPM: EVIDENCE FROM PAKISTAN STOCK EXCHANGE

[26] propose Yager's entropy, which aims to minimize the distance between assets portfolio ratio and equally proportion can make a good performance in hedging unsystematic risk (internal diversity).

An Incremental-Hybrid-Yager's Entropy Model for Dynamic Portfolio Selection with Fuzzy Variable

The CAPM disregards unsystematic risk, because the model assumes that investors hold highly diversified portfolios, which enable investors to eliminate unsystematic risk (see Wagner & Lau, 1971; Klemosky & Martin, 1975).

The downside risk approach to cost of equity determination for Slovenian, Croatian and Serbian capital markets

Also appearing in the literature is the idea that corporate managers should attempt to optimize their total corporate or cash-flow risk exposure, even if security prices do not compensate for unsystematic risk. Titman (12), Myers (13), and Shapiro and Titman (14) argue that even the unsystematic component of total cash- flow risk should be managed, because these beta - associated changes can adversely affect the firm's sales and cost of doing business.

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Specifically, the study decomposes volatility into systematic and unsystematic risk components and investigates the inherent changes in the underlying stocks' volatility subsequent to the resumption of SSFs.

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Unsystematic Risk Unsystematic risk is that portion of complete risk, which is unique to a company (industry); frequently referred to as residual or specific risk, it relates to particular economic aspects, which influence individual industries, firms, securities and projects, for instance the quality of management or equipment failure.

Theoretical aspects of risk in CAPM theory

In order to risk measurement, they applied five criteria of the difference of the sales proposed price, bankruptcy risk, systematic risk, unsystematic risk and the sum of risk.

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By employing ERM, it can reduce its unsystematic risk profile which leads to reduction in the firm's risk premium and as a result, the cost of capital can be lowered.

A Conceptual Framework for Enterprise Risk Management performance measure through Economic Value Added

General market risk can be divided into two general categories systematic risk and unsystematic risk. Unsystematic risk is one that arises from specific nature of company, including structure of main investors' investment product type etc.

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