Market Risk

What Does Market Risk Mean?

Market risk refers to the potential for investment losses caused by industry-wide factors, such as a sudden drop in demand or shifts in the overall economy.

This type of risk is also known as systemic risk.

Insuranceopedia Explains Market Risk

Market risk pertains to the inherent volatility of securities. The value of stocks can drop suddenly, leading to investment losses for those who are forced to sell them while their value is low.

Economic shifts, such as recessions and depressions, also represent significant market risks.

Market risk is one reason annuities and indexed universal life insurance vary so much in their returns. Both products tie a portion of their growth to market performance, so the same downturns that hurt securities can also reduce what these contracts pay out.