Beta B can be interpreted as measure of how risky this asset is compared to the general risk level in the market β<1："low"risk asset B 1 "high"risk asset Systematic vs.firm specific risk --Systematic risk:risk of holding the market portfolio --Firm specific risk:risk that is unique for the asset According to CAPM,the market compensates investors for taking systematic risk but not for taking specific risk since the specific risk can be diversified away!Beta β can be interpreted as measure of how risky this asset is compared to the general risk level in the market β < 1 : "low" risk asset β > 1 : "high" risk asset Systematic vs. firm specific risk --Systematic risk: risk of holding the market portfolio --Firm specific risk: risk that is unique for the asset According to CAPM, the market compensates investors for taking systematic risk but not for taking specific risk since the specific risk can be diversified away!