Type of risk

In finance we use the term risk all the time, but there are many types of risk, this path will look at some of them and serve as an introduction to the coverage of them in class and the text.

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    Risk is not purely a binary topic

    Systematic and unsystematic risk (along with their many name variations---unique, (un)diversifiable, micro/Macro, etc) are the common breakdowns in most finance texts and you DEFINITELY need to know about them.  But I would rather you think of risk more a blend of each (continuum).  In that context, the terms diversifiable risk and undiversifiable  risk may work better.

    However, it is generally not quite that easy and hence why I urge you to not think of this as a either/or dichotomy.  

    For instance, generally liquidity is a systematic risk, but for whatever reason, sometimes affects a sector or an industry.  So while diversification clearly helps, you may not be perfectly diversified away from it.  Similarly, firm-specific risk (aka Unique, diversifiable, micro) risk such as a new product or natural disaster, may affect many firms geographically located or in the same product market, so this is more than just a firm specific event.  


     

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    Introduction to Systematic and Unsystematic Risk

    Professor David Hillier, University of Strathclyde; Short videos for students of my Finance Textbooks, Corporate Finance and Fundamentals of Corporate Finance Check out www.david-hillier.com for my personal website.

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    Investments Types of Risk

    The chart at the start is excellent. Uploaded by CollegeForFinPlan on 2014-01-21.

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    Types of Investment Risks - Series 6 | Investopedia

    Evaluation of Customers - Types of Investment Risks The following article, Furthermore, understand the various factors that influence interest rates, so that you can learn to anticipate their movements for your benefit in the article, Business risk is the measure of risk associated with a particular security.

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    What is systemic risk?

    THIS IS AWESOME!!! Millenium Bridge What is systemic risk? Contributors: Jean-Pierre Zigrand, Jon Danielsson

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    Perspectives on Systemic Risk conference: Interview with Bob Hancké

    Bob Hancké, Associate Professor of Political Economy, Co-investigator of Systemic Risk Centre, LSE gives his views on systemic risk at the Perspectives on Systemic Risk conference on 16th October 2014 http://www.systemicrisk.ac.uk/events/perspectives-systemic-risk

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    A few other good links

    http://www.efficientfrontier.com/ef/900/15st.htm   stresses will always have some diversifiable risk if you are not fully diversified (i.e. if you do not own the market) 


    a bit more technical (and not free for the paper): 

    http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=4470860&fileId=S0022109000006293


    How much diversification is needed? 

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=85428

    more on how much is needed:

    http://www.sciencedirect.com/science/article/pii/S0305048303001336




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    Are the Gains from International Portfolio Diversification Exaggerated? The Influence of Downside Risk in Bear Markets by Kirt C. Butler, Domingo C. Joaquin :: SSRN

    The fundamental rationale for international portfolio diversification is that it expands the opportunities for gains from portfolio diversification beyond those

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