The measure of unsystematic risk can be found from an index model as ________.
A) residual standard deviation
B) R-square
C) degrees of freedom
D) sum of squares of the regression

Question

Quizplus · Accepted Answer

The residual standard deviation, also known as the residual standard error, is a measure of the variability of the residuals in a regression model. Since unsystematic risk is the risk that is specific to individual assets and cannot be diversified away, it can be represented by the residual variability in the index model. Therefore, the measure of unsystematic risk can be found from an index model as the residual standard deviation.

The Measure of Unsystematic Risk Can Be Found from an Index