Systematic risk is the only risk that investors require compensation for bearing.

Question

Quizplus · Accepted Answer

Systematic risk refers to the overall market risk that affects all investments and cannot be diversified away. Since it affects all investors, they require compensation for bearing it. Therefore, systematic risk is the only risk for which investors require compensation. However, investors may also demand compensation for unsystematic or idiosyncratic risks, which are specific to individual investments and can be diversified away.

Systematic Risk Is the Only Risk That Investors Require Compensation