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ON THE THEORETICAL RELATIONSHIP BETWEEN BUSINESS RISK AND SYSTEMATIC RISK
Author(s) -
Conine Thomas E.
Publication year - 1982
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1982.tb00986.x
Subject(s) - systematic risk , econometrics , economics , covariance , stochastic modelling , mathematics , statistics , finance
This article develops a theoretical relationship between systematic risk and business risk. It is an area that has not been substantially developed in the literature. Rubinstein (1973) and Lev (1974) both developed theoretical models of systematic risk allowing for stochastic demand. A model is derived that allows for prices, variable costs and demand to be simultaneously stochastic, utilizing the covariance of the product of random variables. The temporal stationarity of unlevered systematic risk is dependent upon the temporal stationarity of the theoretical structure derived. Insight is gained as to a potential source of the empirically observed temporal instability of levered systematic risk.