Risk and Uncertainty in Stock Market

One hears the words risk and uncertainty more often in the stock market, and whenever there is panic in the stock market these two words are used as if there is no other word in the dictionary. While both the risk and uncertainty are used interchangeably they both have different meaning. Let’s look at both of them one by one –

Risk refers to the possibility of an event happening which one does not want to happen. So for example if one is buying a stock of a company whose earnings are dependent on the price of crude than there is a risk that crude price may fall and therefore stock earnings will also fall leading to a loss to an investor. Risk can be avoided by certain steps like one can short sell crude and hedge against falling crude price, in the same way as one can take life insurance against the risk of death.

Uncertainty refers to lack of knowledge of the event happening, so for example nobody can say where will be the stock market after 2 years because stock market are affected by so many factors and therefore nobody can be certain about the movement in stock market and therefore one cannot insure against uncertainty unlike risk against which one can insure or hedge.

0 comments… add one

Leave a Comment

Related pages

hire purchase advantages and disadvantagesdiscounting of billsupplementary goods economicscost-oriented pricing strategiescross cheque sampleoligopoly monopolydiff between cash flow and fund flowwhat is a horizontal monopolydefinition of fixed deposit accountdividends deftally full formdefine skimming pricinggoing concern accounting conceptdefine fictitious assetsprepaid insurance journal entrymethods to calculate national incomeexplicity costdistinguish between capital expenditure and revenue expenditureproduct bundle pricing definitionskimming pricing strategydiversification advantages and disadvantagesunsystematic risk examplesan autocratic leaderexample of a conglomerate mergerfullform of nasdaqdisadvantages of globalizationdematerialisation of shares pptwhat is the journal entry for prepaid rentadvantages and disadvantages of zero based budgetingexample of primary industrydefine predeterminationexamples of direct taxesfull form nasdaqdefinition of unqualified audit opiniondefine drawings in accountingdifferent kinds of factoringwhat are the pros and cons of international tradewhy is deflation a problemlaw of diminishing utility examplemonopoly price makerindirect quotation definitiondisadvantages of industries wikipediadifferentiate between trade discount and cash discountglobalisation benefits and disadvantagesdefinition of drawer drawee and payeeadvantages of dictatorshipwholesale loan operations meaningdefine privatisationaudit evidencesadvantages of cashless policydifferentiate between shares and debenturesaccounting and economic profitdupont roe analysisfdi and fiiprepaid journal entriesdisadvantages of monopolistic competition market structureadvantage and disadvantage of organizational structurewhat are the disadvantages of capitalismdisadvantages and advantages of advertisementconsignor meaningdisadvantages of a mixed economyproblems of barter tradehow to calculate crradvantages of a mixed economic systemadvantages of authoritarian leadershipdividend wikipediadifference between accounts payable and accounts receivableadvantages of autocratic leadership styleb2b disadvantagesadvantages of debenturesdifference between wholesale and retail bankingmerger and acquisition advantagesadjusting entries for prepaid expensescheque deposit procedurestrap option strategy