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Soru

Zorluk: OrtaSystematic and Market Risks

An investor allocates capital across ten different domestic equity mutual funds covering small-cap, mid-cap, and large-cap growth and value stocks across various industries. During a broad economic downturn, all ten funds experience simultaneous market value declines. Which of the following statements best explains why this broad asset allocation did not prevent the portfolio losses?

  1. Systematic risk affects the overall market and cannot be eliminated through asset diversification within the market.Cevap
  2. B
    Proper diversification across domestic equities completely eliminates market risk, indicating that the portfolio losses resulted entirely from unsystematic credit risk.
  3. C
    The simultaneous decline occurred because market risk is a form of issuer default risk that affects individual corporate balance sheets rather than general economic conditions.
  4. D
    An inverted yield curve guarantees that equity mutual funds convert systematic risk into yield-curve risk, causing price declines across all fund categories.

Cevap

Systematic risk affects the overall market and cannot be eliminated through asset diversification within the market.
Systematic risk (also called market risk) is caused by macroeconomic factors such as recessions, interest rate changes, and geopolitical events that affect all investments across a market segment simultaneously. Adding more stocks or equity funds reduces unsystematic (specific) risk, but cannot eliminate systematic market risk.

Adım Adım Çözüm

1
Identify the nature of the portfolio and the cause of the decline described in the scenario.
The portfolio is broadly diversified across equity sub-categories, yet all holdings fall together during a general economic downturn.
Evaluating whether the risk source is specific to individual companies or inherent to the broad market determines the risk type.
2
Distinguish between systematic (market) risk and unsystematic (specific) risk.
Unsystematic risk affects specific issuers or sectors and can be diversified away. Systematic risk affects the broader market due to macroeconomic forces and cannot be eliminated by diversification.
Understanding the limits of diversification is a core SIE concept in risk management.
3
Select the option that accurately describes why diversification fails to shield the portfolio from market-wide downturns.
The statement identifying systematic risk as non-diversifiable and market-wide correctly accounts for the portfolio's simultaneous decline.
This directly aligns with fundamental portfolio theory tested on the SIE exam.

Anahtar Kavram

Non-diversifiability of Systematic/Market Risk
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Konular

Systematic and Market Risks

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