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Most finance textbooks say that investors should diversify because they will not be compensated for unsystematic risk. This may wrongly imply that the market has

Most finance textbooks say that investors should diversify because they will not be compensated for unsystematic risk. This may wrongly imply that the market has a formal (automatic) reward system for risk. In fact, how do investors demand to be compensated for systematic risk and why does this explain why they can not be compensated for unsystematic risk?

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