Question

True, False or Uncertain, and justify. COVID-19 is a good example of a ‘systematic risk’ since it has, to a first approximation, materially affected the price of every asset trading in every marketplace in the world. As a consequence, then rational, risk-averse investors who were well-diversified prior to the pandemic do not need to rebalance their portfolios. Please explain/justify your answer.

Answer 1

Covid-19 is an example of systematic risk as it is related to the overall market across the whole globe. It cannot be said to be unsystematic risk because it is not a specific risk affecting a particular segment of the industry but it is affecting the whole marketplace all across different asset class on the globe.

So the given statement is true as the covid-19 is an example of systematic risk.

But, another part of statement which said that the risk averse investor who were well-diversified before this pandemic does not need to rebalance their portfolio would be not correct to assume because the covid-19 had already shaken the bond market to never seen levels, as well as it has also shaken the world markets to such levels which were never seen before.

so the first part of this statement is True and the second part of statement is uncertain.