Market Risk

Market Risk - * Foreign Competition * Tax Rate Changes *...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Market (i.e. Systematic) Risk  is also  called  non-diversifiable risk.    This  risk  cannot  be diversified away. Firm Specific (i.e. Nonsystematic or   Idiosyncratic) Risk  is also called  diversifiable risk .  This risk  can  be  reduced through diversification. Question:  If you owned a share of  every  stock traded on the NYSE and  NASDAQ, would you be diversified?     Answer: YES! Question:  Would you have  eliminated  all  of your risk?     Answer: NO!    Common stock  portfolios still have systematic (i.e.  market) risk.   Example:   Stock market crash of  Winter 2008-09.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Unexpected changes in  interest rates Unexpected changes in  cash   flows  due to: * Foreign Exchange Rate Changes
Background image of page 2
Background image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: * Foreign Competition * Tax Rate Changes * Business Cycle 1) A companys labor force goes on strike 2) A companys top management dies in a plane crash 3) Proprietary information vs. patent protection lawsuit 4) Obsolescence of a firms unique products occurs sooner than anticipated 5) A huge oil tank bursts and floods a companys production area Question: Do some firms have more market risk than others? Answer: Yes! Example: An economic slowdown affects all firms, but which would be more affected: * Harley-Davidson b) Insulin manufacturer...
View Full Document

Page1 / 3

Market Risk - * Foreign Competition * Tax Rate Changes *...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online