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


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 ?
Securities and Exchange Commission, affirmed Ceylon Dollar Bond Fund's (CDBF) International Fund Credit Quality Rating at 'B+f' and Fund Market Risk Sensitivity Rating at 'S5', and simultaneously withdrawn the rating.
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.
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.
The market risk is explicitly measured and tested as a driving force for a deviation from the uncovered equity parity.
Both the principal and the earned interest have been protected from market risk.
The bank has implemented KRM from Fiserv, Inc as its market risk measurement and management solution.
The solution from Misys will enable Suncorp to perform a number of risk management operations when it is determining traded market risk and treasury credit.
The capital amounts that each institution must hold, disclosed in publicly available regulatory reports, appear to offer new information about the market risk exposures undertaken by these institutions.
Basically, the "venture game" can be defined in terms of risk: technology risk -- the danger that you can't actually build what you've set out to create, and market risk -- the threat that you won't be able to sell what you've created.
Further, no economic substance existed, because the carefully planned ADR transaction eliminated virtually all of the market risk associated with the transaction.
TOKYO, March 2 Kyodo The Financial Supervisory Agency (FSA) searched Sumitomo Bank's offices in February to probe how the major commercial bank is handling its market risk management, its deputy commissioner said Tuesday.