The Differences Between Systematic and Non-Systematic Risk and Alternative Approaches to Understanding Risk

Shuyu Chen

doi:10.54097/ehss.v16i.9603

Authors

Shuyu Chen

DOI:

https://doi.org/10.54097/ehss.v16i.9603

Keywords:

systematic risk; non-systematic risk.

Abstract

This paper first states the differences between systematic and non-systematic risks from several aspects and secondly emphasizes the importance of risk recognition. Then an alternative approach used to understand risks, the Capital Asset Pricing Model (CAPM), is explained, for further measurement and understanding of Systematic and non-systematic risks, while there are still some limitations. Finally, some strategies that can be used in a real-time dynamic stock market are recommended, mainly focusing on the application of beta values.

Downloads

Download data is not yet available.

References

Board of Governors of the Federal Reserve System (2020), Supervisory Policy and Guidance Topics: Market Risk Management, retrieved from https://www.federalreserve.gov/supervisionreg/topics/market_risk_mgmt.htm

William Sharpe (2011). Investors and market-Selection of the portfolio, asset pricing, and investment recommendations.

Ravi Jagannathan & Ellen R. McGrattan (1995). The CAPM Debate. Federal Reserve Bank of Minneapolis Quarterly Review Vol. 19, No. 4, Fall 1995, pp. 2–17.

Zhu Shuzhen (2007), Financial risk management, chapter 3: major financial market.

Will Kenton (2022), Capital Asset Pricing Model (CAPM) and assumptions.

Chung, Y. Peter, Herb Johnson, and Michael J. Schill. "Asset pricing when returns are nonnormal: Fama‐french factors versus higher‐order systematic co-moments." The Journal of Business, Vol. 79, No. 2. 2006. Pp. 923-940. Retrieved from https://www.investopedia.com/terms/c/capm.asp#citation-5.