SYSTEMATIC RISKS IN SECURITY PRICING

Stock market performance is becoming an important indicator of a nation’s economy. It reflects through stock prices and has tremendous influence in shaping the global economy. When the stock market tumbles we become nervous about the weakness of the economy. When it is strong, everyone senses economic prosperity. Typically investors come from various segments of the population. The success depends on investors’ knowledge and capacity in decision making. Some are efficient enough to make profits from investing in the stock market, while others lose. There are many theories and schools of thought operating in the field of stock investment. Abundance of literature, training and analytical tools are also available. Yet, investors need to understand the fundamentals of stock pricing mechanism. Often, the whole process seems very difficult as the risks of investing in stocks are of two types. One type of risk can be diversified away; while the other cannot. The risks that cannot be diversified away are called systematic risks and vary from one market to another. Besides, global stock market may be integrated. From Australian perspective this monograph shades answers to related questions.