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Please help me to understand the slide on derivation of CAPM at 20:36. First bullet point states that investors are only compensated for systematic or systemic risk. I tend to believe that systematic risk equally applies to all companies in a particular market universe. For example, IT companies in India are facing deeper recession in the US. Thus order inflow is expected to slow down which will impact every IT company doing business in the US. Yet, Beta of each company will differ. Because, each company will respond differently to recession. Thus, company's capability to deal with recession differs. This is nothing but specific or unsystematic risks. So, Beta is a total of systematic risk that every IT company will face + risk specific to a company. I tend to believe that Beta acknowledges unsystematic risk as well. Hence, beta of company A could be 1.10 and another could be 0.95
Greetings respected Professor. Your videos are Brilliant a non finance person is able to make sense of this
Glad you think so and thank you for the kind words!
You are extremely good at explaining things! Thanks.
I appreciate that! If you like our video lessons, it would be helpful to spread the word if you could take 2 minutes of your time to leave us a review at www.trustpilot.com/review/analystprep.com
Very clear explanation. Thank you and Happy New Year. :)
Glad it was helpful!
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Glad you like it!
Please help me to understand the slide on derivation of CAPM at 20:36. First bullet point states that investors are only compensated for systematic or systemic risk. I tend to believe that systematic risk equally applies to all companies in a particular market universe. For example, IT companies in India are facing deeper recession in the US. Thus order inflow is expected to slow down which will impact every IT company doing business in the US. Yet, Beta of each company will differ. Because, each company will respond differently to recession. Thus, company's capability to deal with recession differs. This is nothing but specific or unsystematic risks. So, Beta is a total of systematic risk that every IT company will face + risk specific to a company. I tend to believe that Beta acknowledges unsystematic risk as well. Hence, beta of company A could be 1.10 and another could be 0.95
the hardest chapter in book one,
good luck everyone!
Probably, yes. We hope our explanations have helped you better understand the CAPM!
Thumbs up professor👍 how do I find your other videos on finance topics...
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