Generalized Systematic Risk
American Economic Journal: Microeconomics
vol. 8,
no. 2, May 2016
(pp. 86-127)
Abstract
We generalize the concept of "systematic risk" to a broad class of risk measures potentially accounting for high distribution moments, downside risk, rare disasters, as well as other risk attributes. We offer two different approaches. First is an equilibrium framework generalizing the Capital Asset Pricing Model, two-fund separation, and the security market line. Second is an axiomatic approach resulting in a systematic risk measure as the unique solution to a risk allocation problem. Both approaches lead to similar results extending the traditional beta to capture multiple dimensions of risk. The results lend themselves naturally to empirical investigation. (JEL D81, G11, G12)Citation
Kadan, Ohad, Fang Liu, and Suying Liu. 2016. "Generalized Systematic Risk." American Economic Journal: Microeconomics, 8 (2): 86-127. DOI: 10.1257/mic.20140244Additional Materials
JEL Classification
- D81 Criteria for Decision-Making under Risk and Uncertainty
- G11 Portfolio Choice; Investment Decisions
- G12 Asset Pricing; Trading volume; Bond Interest Rates
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