market risk


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Market risk

Risk that cannot be diversified away. Related: Systematic risk

Systemic Risk

A risk that is carried by an entire class of assets and/or liabilities. Systemic risk may apply to a certain country or industry, or to the entire global economy. It is impossible to reduce systemic risk for the global economy (complete global shutdown is always theoretically possible), but one may mitigate other forms of systemic risk by buying different kinds of securities and/or by buying in different industries. For example, oil companies have the systemic risk that they will drill up all the oil in the world; an investor may mitigate this risk by investing in both oil companies and companies having nothing to do with oil. Systemic risk is also called systematic risk or undiversifiable risk.

market risk

1. The risk that because general market pressures will cause the value of an investment to fluctuate, it may be necessary to liquidate a position during a down period in the cycle. Market risk is highest for securities with above-average price volatility and lowest for stable securities such as Treasury bills. Market risk is of little consequence to a person who purchases securities with the intention of holding them for long periods.

Market risk.

Market risk, also known as systematic risk, is risk that results from the characteristic behavior of an entire market or asset class.

One example of this type of risk is that the market prices of existing bonds generally fall as interest rates rise because investors are not willing to pay par value to own a bond that pays less interest than other bonds available in the marketplace.

So if you wanted to sell your existing bonds, you would probably have to settle for less than you paid to buy them.

Asset allocation is generally considered an antidote for market risk, since if your portfolio includes multiple asset classes it tends to be less vulnerable to a downturn in any one class.

market risk

or

non-diversifiable risk

that part of total risk (within the CAPITAL-ASSET PRICING MODEL) attributable to the holding of a security, or portfolio of securities, which depends upon variations in general security prices on the STOCK MARKET. Market risk is associated with general market variations as measured by a market index, such as the Financial Times All-Share Index or the Dow-Jones Index. Unlike SPECIFIC RISK, it is not possible to diversify market risk away, because however large the portfolio of shares held, they are all influenced by the market generally to a greater or lesser extent. See BETA COEFFICIENT.
References in periodicals archive ?
Wolters Kluwers Finance Risk & Reporting (FRR) business is the Best Market Risk Solution Provider, according to Waters Technology, the 35-year-old journal of record for the financial technology industry.
ENPNewswire-August 23, 2019--Wolters Kluwer Wins Waters Technology Award for Market Risk
Object+ provides market risk management technology that includes real-time Profit and Loss and margin management as well as pre-trade order limit management.
Shanghai/Taipei: Fitch Ratings has upgraded Taiwan-based Yuanta De-Bao Money Market Fund's, Yuanta De-Li Money Market Fund's and Yuanta Wan Tai Money Market Fund's National Fund Credit Quality Ratings to 'AAAf(twn)', from 'AA+f(twn)', and has affirmed the funds' National Fund Market Risk Sensitivity Ratings at 'S1(twn)'.
In terms of financial market risk, the think tank gave the elections a 'low' risk.
KIBOR as a benchmark, to encourage transparency and improve management of the market risk undertaken by banks.
STILLWATER Oklahoma State University Spears School of Business faculty member Betty Simkins was appointed to serve a three-year term on the Market Risk Advisory Committee of the U.S.
New York, NY, July 17, 2016 --(PR.com)-- On July 14, 2016, RiskVal Financial Solutions, LLC, a financial engineering service provider, was awarded "Best Market Risk Solution Provider" for RiskVal Fixed Income (RVFI) Analytics, and "Best Portfolio Management System Provider" for RiskVal Portfolio (RVPortfolio) at the Waters Ranking Awards 2016 ceremony.
The overhaul of the internal models approach - used by most banks with large trading books to calculate market risk capital requirements - will be costly, says Fitch Ratings.
The reported stated that in the NCUA's assessment of sensitivity to market risk under the L in its CAMEL rating may "understate or obscure instances of high IRR exposure in a credit union." Download and read the complete OIG report here.
This handbook provides guidance to investors on the theories, applications, and statistical methodologies of market risk. Combining quantitative treatment with conceptual discussion, the author presents fourteen chapters on the nature of financial markets, the efficient market theory, return and volatility estimates, diversification benefits and correlation estimates, the Capital Asset Pricing Model and Arbitrage Pricing Theory, the equity fundamental multifactors model, financial derivatives, fixed income and interest rate risk, liquidity risk, active management versus passive management, stress testing and back testing, and the third Basel Accord on banking supervision.
Islamic modes of financing like Murabaha, Musharaka, Mudaraba, Ijara, Salam, Istisna'a and other Islamic modes of financing pose unique risk factors to Islamic Banks, which may be summarised as: Liquidity originated market risk ; transformation of credit risk to market risk and market risk to credit risk at various stages of a contract; bundling of credit risk and market risk, market risk arising from owning the underlying non-financial asset until maturity of a contract or until the ownership is transferred to customer and treatment of default As a result, there are unique balance sheet features of Islamic Banks from a Market risk perspective.