Quick Q - Residual Risk

CFA Level III
#1

What is this? In relation to unsystematic, systematic risk?

thanks

#2

any ideas? I’ve read this in my notes but can’t find a definition.

#3

Settlement risk and operational risk are residual risk I suppose, read somewhere

#4

residual risk means any risk that cannot be explained in systematic way , so it is the undiversified component of total risk

#5

Seem to remember reading that this is counterparty risk (aka Lehman!) and regulatory risk (getting screwed over with taxes).

#6

agree wih Kiakaha, it’s in the Low basis stock reading.

#7

Personally, I always though of residual risks as non-financial risks. Therefore, I think it would be strange to see them questioned in the context of systematic/unsystematic. I haven’t seen any questions like that in the practice tests. Have you?

Anyway’s, here’s a quick run-down:

Financial risks: Market risk, Liquidity risk, Credit risk, Sovereign risk

Nonfinancial risks: Settlement risk, Operations risk, Model risk, Regulatory risk, Sovereign risk, Other