Determinants of Systematic Risk
The Journal of Commerce, Vol. 4, No. 1,
ISSN: 2218-8118, 2220-6043
Hailey College of Commerce, University of the Punjab, PAKISTAN
DETERMINANTS OF SYSTEMATIC RISK
Muhammad Junaid Iqbal1
Dr. Syed Zulfiqar Ali Shah2
Risk associated with investment defines the return that an investor wants from his/her investment. There is a direct association among risk and expected return. It means that if uncertainty on any investment is higher it will also increase the expected return of that particular investment. Information of systematic risk is beneficial for investors to analyze the nature of risk associated with investment (Gu and Kim, 2002). Another most important aspect to determine the financial variables which are associated with systematic risk or beta is to help the firm’s executives. Finance officer consider the systematic risk at the time of making policies and strategies in order to enhance the investor’s wealth. Breen and Lerner (1973) argued in the context of decision making that variations in financial and operational decisions could change the stock returns and may enhance the uncertainty regarding investment. Mao (1976) also argued in context of decision making that finance manager of the firm be able to control business and financial uncertainty.
The effect of different financial variables on systematic risk has been determined by several previous studies. Some studies concluded significant effect of systematic risk on financial variables in different industries (Beaver et al.,
1970, Lee and Jang, 2006 and Gu and Kim, 2002).
Logue and Merville (1972) estimated significant results with profitability, debt ratio and company size. The details of all determinants have been discussed in the section of literature review. Systematic risk might change from one industry to another industry. Different studies have incorporated different industries for determining the financial variables that have impact on beta. Lee and Jang
ISSN: 2218-8118, 2220-6043
Hailey College of Commerce, University of the Punjab, PAKISTAN
DETERMINANTS OF SYSTEMATIC RISK
Muhammad Junaid Iqbal1
Dr. Syed Zulfiqar Ali Shah2
Risk associated with investment defines the return that an investor wants from his/her investment. There is a direct association among risk and expected return. It means that if uncertainty on any investment is higher it will also increase the expected return of that particular investment. Information of systematic risk is beneficial for investors to analyze the nature of risk associated with investment (Gu and Kim, 2002). Another most important aspect to determine the financial variables which are associated with systematic risk or beta is to help the firm’s executives. Finance officer consider the systematic risk at the time of making policies and strategies in order to enhance the investor’s wealth. Breen and Lerner (1973) argued in the context of decision making that variations in financial and operational decisions could change the stock returns and may enhance the uncertainty regarding investment. Mao (1976) also argued in context of decision making that finance manager of the firm be able to control business and financial uncertainty.
The effect of different financial variables on systematic risk has been determined by several previous studies. Some studies concluded significant effect of systematic risk on financial variables in different industries (Beaver et al.,
1970, Lee and Jang, 2006 and Gu and Kim, 2002).
Logue and Merville (1972) estimated significant results with profitability, debt ratio and company size. The details of all determinants have been discussed in the section of literature review. Systematic risk might change from one industry to another industry. Different studies have incorporated different industries for determining the financial variables that have impact on beta. Lee and Jang
References: Amit, R., & Livnat, J. (1988). Diversification, capital structure, and systematic risk: An Accounting, Auditing & Finance, 3 (I), 1943. Ang, J., Peterson, P., & Peterson, D. (1985). Beaver, H., Kettler, P., & Scholes, M. (1970). The association between market determined Borde, S. (1998). Risk diversity across restaurants Borde, S. F., Chambliss, K., & Madura, J. (1994). Breen, J., & Lerner, M. (1973). Corporate financial strategies and market Brenner, M., and Smidt, S. (1977). A simple model The Journal of Commerce, Vol. 4, No. 1, ISSN: 2218-8118, 2220-6043 Patel, R.C & Chatfield, R (1983). Market Power and Economics.No.5.