Four way equivalence model and Systematic risk: Difference between pages

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A model that proposes a number of related conceptual linkages between differences in:
1. ''Capital Asset Pricing Model (CAPM)''.


(i) Interest rates;
Systematic risk is an important concept in the Capital asset pricing model.


(ii) Spot and forward foreign exchange rates;
Systematic risk means the element of total risk which cannot be eliminated by holding a diversified portfolio of investments.


(iii) Expected inflation rates;  and
Under the CAPM, only systematic risk is rewarded with additional returns.


(iv) The expected change in spot foreign exchange rates.
(Because rational investors are assumed to have already fully diversified away all diversifiable risks).




The related individual linking theories are:
Systematic risk is often quantified by Beta.
 
 
Systematic risk is also known as 'market risk' or 'non-diversifiable risk'.
 
 
2.
 
''Financial markets supervision''.
 
The same as ''systemic risk''.


#Interest rate parity theory - linking interest rates & spot and forward foreign exchange rates.
#The Fisher Effect - linking interest rates with expected inflation rates.
#Expectations theory - forward foreign exchange rates and future out-turn spot foreign exchange rates.
#The International Fisher Effect - interest rate differentials and expected change in spot foreign exchange rates.
#Purchasing power parity theory - inflation rate differentials and expected change in spot foreign exchange rates. 




== See also ==
== See also ==
* [[Carry trade]]
* [[Beta]]
* [[Expectations theory]]
* [[Capital asset pricing model]]
* [[Fisher Effect]]
* [[Gearing]]
* [[Interest rate parity]]
* [[Market risk]]
* [[International Fisher Effect]]
* [[Non-diversifiable risk]]
* [[Model]]
* [[Systemic risk]]
* [[Purchasing power parity]]
* [[Unsystematic risk]]


[[Category:Knowledge_and_information_management]]
[[Category:Manage_risks]]
[[Category:Corporate_finance]]
[[Category:Identify_and_assess_risks]]

Revision as of 14:05, 16 May 2020

1. Capital Asset Pricing Model (CAPM).

Systematic risk is an important concept in the Capital asset pricing model.

Systematic risk means the element of total risk which cannot be eliminated by holding a diversified portfolio of investments.

Under the CAPM, only systematic risk is rewarded with additional returns.

(Because rational investors are assumed to have already fully diversified away all diversifiable risks).


Systematic risk is often quantified by Beta.


Systematic risk is also known as 'market risk' or 'non-diversifiable risk'.


2.

Financial markets supervision.

The same as systemic risk.


See also

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