Which is the best example of idiosyncratic risk?
A) a financial crisis
B) a lawsuit because the corporation produced a faulty product
C) a recession
D) rising interest rates

Question

Quizplus · Accepted Answer

Idiosyncratic risk refers to risks that are specific to a particular company or industry, and cannot be diversified away through portfolio diversification. A lawsuit against a corporation because of a faulty product is a prime example of idiosyncratic risk because it is unique to that specific company and cannot be offset or mitigated by investing in other companies or industries. Financial crises, recessions, and rising interest rates are macroeconomic factors that affect the entire market, and therefore are not idiosyncratic risks.

Which Is the Best Example of Idiosyncratic Risk