Financial And Social Environment Risk

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Several elements and factors about financial and social environment risk should be considered when a portfolio is chosen. In this section, we present the nature and classification of risk in the impact investment portfolio. Nature of impact investment risk Risk profile is determined by impact thesis and financial targets. It is believed that the types of risk in impact investments are similar to risks in traditional investment in the same sector, region and instrument. Although the impact pursuit will not lead to additional risks compared to general investment, perhaps the impact thesis can decide the scope of investment portfolio, then influence the risk profile indirectly. Cross-market risks exists. The market does have some…show more content…
It can be divided into systematic risk and unsystematic risk. And in CAPM model, professional investors will take market risk into consideration when calculating return in a quantitative way. CAPM model (Ang, A., & Chen, J. (2007). CAPM over the long run: 1926–2001. Journal of Empirical Finance, 14(1), 1-40.) is: =risk free rate; =expected market return; =Beta of the security, which represents its systematic risk, valuating the return viation compared to the whole market; =expected security return; =market risk premium Default risk Default risk means if the company files for bankruptcy of if the municipality is mismanaged, it’s possible that investors won’t receive the return promised. In general investments, default risk is not rare when investment managers invest in bonds, even pensions. As for impact investment, this usual risk also exists. To know about the default risk of a security, a regular way is to watch its bonding rates, like Moody’s and S&P. Inflation risk Financial planners like to assume that inflation runs about 3 or 4 percent a year over long periods of time. This allows planners and investors to calculate expected “real” returns for an impact investment.( Using Fisher’s equation(Levi, M. D., & Makin, J. H. (1978). Anticipated
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