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Market risk

From Academic Kids

Market risk is the risk that the value of your investment will decrease due to moves in market factors. The four standard market risk factors include:

  • Equity risk, or the risk that stock prices will change.
  • Interest rate risk, or the risk that interest rates will change.
  • Currency risk, or the risk that foreign exchange rates will change.
  • Commodity risk, or the risk that commodity prices (i.e. grains, metals, etc.) will change.

Sometimes, a fifth risk factors is also considered:

  • Equity index risk, or the risk that stock or other index prices will change adversely.

Measuring

Market risk is typically measured using a Value at Risk methodology. Market risk can also be contrasted with Specific risk which measures the risk of a decrease in one's investment due to a change in a specific industry or sector, as opposed to a market-wide move.

See also

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