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Generalized Systematic Risk

Author
Kadan, Ohad; Liu, Fang; Liu, Suying
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.
Date Issued
2014-10-01Subject
risk; capital asset pricing; equilibrium framework; rare disasters
Rights
Required Publisher Statement: © American Economics Association. Reprinted with permission. All rights reserved.
Type
article