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Definition of 'Systematic Risk' The risk inherent to the entire market or entire market segment. Also known as "un-diversifiable risk" or "market risk." Interest rates, recession and wars all represent sources of systematic risk because they affect the entire market and cannot be avoided through diversification. Whereas this type of risk affects a broad range of securities, unsystematic risk affects a very specific group of securities or an individual security. Systematic risk can be mitigated only by being hedged. Even a portfolio of well-diversified assets cannot escape all risk. ________________________________________________________________________________ Definition of 'Unsystematic Risk' Company or industry specific…show more content…
Within the Momentum Model they used two approaches to forecasting future earnings estimate revisions. 1) an approach based on past changes in analyst's estimates. These small revisions would then encourage other analysts to update their estimates. This would lead to earnings estimate leapfrogging and a herd effect. They captured this effect in its "Estrend" or earnings estimate "trend" model. Candidates with large increases in analysts' estimates were candidates for buying and companies with large decreases in analysts' estimates were candidates for selling short. 2) the second approach to forecasting future changes in analysts' earnings estimates was based on earnings surprises...company announcements of quarterly earnings that were significantly different from the consensus of analysts' expectations. A stock price increase immediately following the announcement of a positive earnings surprise usually would signal that the earnings were indicative of good future outcomes for the company. However, a stock decline might signal perhaps that, while the last quarter may have been better than expected, other information released in the announcement was indicating that the improved earnings were unlikely to be sustained. So for a given stock, Numeric's models determined both an Estrend score and an earnings surprise score. These scores were then combined in a weighted
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