Definition for : Market risk

Market Risk is due to trends in the entire economy, tax policy, Interest rates, Inflation, etc., and affects all securities. Market Risk is the Exposure to unfavourable trends in product prices, Interest rates, exchange rates, raw material prices or Stock prices. Market Risk of a Security is Covariance of the Returns on the Security and the Market return. Market Risk represents the portion of Risk that cannot be eliminated even after taking advantage of Diversification. To varying degrees, market Risk affects all securities. Only market Risk is remunerated by the Stock market. The market Risk of a Financial security is frequently expressed in terms of its sensitivity to market fluctuations. Market Risk is also called Systematic risk or Undiversifiable risk.

(See Chapters Chapter 18 Risk and return, Chapter 19 The required rate of return and Chapter 49 Managing working capital of the Vernimmen)

To know more about it, look at what we have already written on this subject