FIN 3104 Lecture Notes - Lecture 8: Risk Measure, Capital Asset Pricing Model, Systemic Risk
Document Summary
Risk diversi ed away within the rm or project contribution to rm risk. Shareholders" perspective: systematic risk, diversi ed away within their portfolio. For a project, there are three types of risk: stand alone risk (standard deviation, project contribution to rm risk, systematic risk (shareholders" perspective) No, but it is the easiest to measure. Is the risk that the project contributes to the rm"s total risk the relevant risk. In theory, do what capm says to do. However, moving from theory to practice it tough. 1. 2 measurement problems: r2 is sometimes too small, betas aren"t stable, problem measuring beta: new projects have no historical prices to measure beta with. 1. 3 problems of misspeci cation: capm appears to be misspeci ed. Factors other than systemic risk appear to play a role in explain security returns. 1. 4 dealing with undiversided shareholders: example: bill gates - for him, unsystematic risk is important since he has a lot of shares in.