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December 7, 2016 at 8:28 am
How is that variance of the market measured? Do they use the share price movements (i.e. if share prices move frantically we have high risk and if they are stable low risk), or do they incorporate other factors as well? Thanks!
John Moffat says
December 7, 2016 at 1:35 pm
You won’t be asked to calculate it in the exam, but it is calculated from movements in the Stock Exchange Index (which represents the average of all the shares).
December 8, 2016 at 6:31 pm
Thanks John 🙂 I think this is why I keep failing exams, I wonder about questions I shouldn’t 😛
December 9, 2016 at 6:12 am
You are welcome 🙂
May 3, 2016 at 9:06 am
are the following statements correct:
1. asset betas will be same for all companies within a sector, irrespective of gearing.
2. equity betas will be different for companies within a sector – unless their gearing is the same, ie. same gearing will give same equity beta for 2 different companies within a sector.
in this lecture, the point being made is that equity beta is same within a sector.
can u pls elaborate
May 3, 2016 at 9:35 am
after thought: is asset beta the same as beta for systematic risk?
May 3, 2016 at 5:09 pm
Your first two statements are correct (and my lecture certainly does not say that the equity beta is the same within a sector!).
The asset beta measure the systematic risk of the business. The equity beta is the systematic risk as increased due to the gearing.
May 3, 2016 at 8:34 pm
the student in ur lecture asked whether the beta applied to the same sector…..thats y i asked.
February 21, 2016 at 12:35 pm
Thank you a lot sir 🙂
you lectures are of great help to me for self study and u cleared my concept of market risk and systematic risk which i was confused with … .
February 21, 2016 at 3:24 pm
Thank you 🙂
January 9, 2016 at 5:11 am
I have got problem to watch lecture on line kindly assist
January 9, 2016 at 10:09 am
The lectures are working fine, and so it is impossible to assist without knowing what the problem is at your end.
You should go to the support page – the link is above.
December 26, 2015 at 11:22 pm
Sir, I’ve got a little confused about the CAPM formula.
Can I derive from the part of the formula as follows:
(Rm – Rf) is actually arriving at the systematic risk in the stock exchange based on the assumption that all the unsystematic risk have been diversified away via from well diversified portfolio of investment in the market?
December 27, 2015 at 9:30 am
Rm – Rf is not measuring risk itself, it measures the extra return required for the level of risk in the stock exchange as a whole. The stock exchange as a whole is certainly well-diversified – that is not an assumptions.
Individual shares may be more risky the the stock exchange as a whole, or less risky than the stock exchange as a whole (the return on the stock exchange is the average of all of the shares). Beta measures the risk of individual shares relative to the stock exchange as a whole – shares that are more risky have a beta more than 1, and shares that are less risky ha a beta of less than 1.
December 27, 2015 at 2:33 pm
December 27, 2015 at 2:40 pm
SOUD SAEED says
February 10, 2015 at 11:24 pm
Hi Mr Moffat,
Is the risk which we calculated using the standard deviation in the previous lectures, is it systematic risk based on the assumption of diversified portfolio? Or it is the total risk, also used in calculation of systematic & unsystematic risk (? total2 = ?systematic2 + ?unsystematic2)?
My apologies the formula above is not so clear.
May 23, 2014 at 7:24 pm
Hi we calaculted Beta to be 2.64 in this example. Why is is when you mention it you dont round it up but down is that the genereal rule? that Beta is 2 not 3? Many thanks
May 23, 2014 at 9:11 pm
I do not think I ever said you don’t round up but round down! You must have misheard me.
We usually quote beta to two decimal places.
Where rounding is involved (anywhere in the exam) you round up or down to the nearest number. (If it is .5 then it doesn’t matter whether you go up or down 🙂 )
February 24, 2013 at 10:58 am
Hello, I think I left this comment on the wrong topic! Not sure how that happened. But I was a bit confused in example 3, does standard deviation = market risk? thanks
June 9, 2012 at 7:10 am
Dear Admin! It is working now! Thank you very much!
June 8, 2012 at 9:32 pm
Dear OT! I somehow do not hear the sound for that particular lecture! Could you please help me?
June 8, 2012 at 10:48 pm
@nailya1908, maybe you have clicked ‘mute’ button on the video player controls?
June 8, 2012 at 9:27 pm
Dear OT! You make my life easy! Thank you very very much!!! )))
March 3, 2012 at 9:08 am
I hope i’m corrrect when i add that they are thesame. Use of the two terms arises when comparing risk of one sector (e.g petroleum) against that of the market as a whole.
somebody please correct me if i am wrong.
August 7, 2012 at 2:28 pm
@blackpaddy, See what I have written in answer to the question below.
February 17, 2012 at 6:32 pm
what is the difference between systematic risk and market risk?
February 25, 2012 at 5:24 am
@yelen, same thing
March 6, 2012 at 5:28 am
Beta is systematic risk divided by market risk. In the example 2 systematic risk is 8%, market risk is 10%
So they are not the same..
March 6, 2012 at 10:53 am
@yelen, In this context, the systematic risk is the individual company’s risk, and the market risk refers to the whole companies’s risk in the stock exchange.
The difference is only about the amount but nature is the same.
@kateker, You are correct that the nature is the same, but be careful about the wording.
“Market risk” is the risk of the stock exchange as a whole (i.e. the average of the risks of all shares on the stock exchange).
The “systematic risk” of a particular share is that risk due to general economic factors (and risk due to factors peculiar to the company – “unsystematic risk” is ignored on the assumption shareholders have well-diversified portfolios.
(The risk of the market as a whole is only systematic because the market as a whole is perfectly well diversified).
Some shares have higher systematic risk than the market, and some have less. The risk of the market is the average of all of them.
September 26, 2011 at 11:34 am
September 16, 2011 at 1:31 pm
y cnt i see any of the videos
July 29, 2011 at 12:24 pm
thanks to opentuition……. for providing to students a very very useful and helpful study stuff………!!!1
May 16, 2011 at 9:35 pm
I always found this confusing but this surely simplified it for me. Thanks
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