Under what circumstances are investors likely to ignore the unsystematic risk characteristics of...

Question:

Under what circumstances are investors likely to ignore the unsystematic risk characteristics of a security?

Investment Risks:

A risk is anything that when it happens it causes an adverse variation of investment return. In any investment, there are some risks that are involved. Some of these risks include:

  1. Systematic risks.
  2. Unsystematic risks.

Answer and Explanation:

Unsystematic risks refer to the risk that is unique to a particular firm. An investor will ignore unsystematic risk in case there is a well-diversified portfolio. When the investor has a well-diversified portfolio then any unsystematic risk which can be assigned to any company will be offset by the portfolio, therefore, an investor tends to ignore unsystematic risks.


Learn more about this topic:

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Investment Risks: Definition & Types

from Finance 305: Risk Management

Chapter 3 / Lesson 3
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