Risk Factors

Event Risk

Event risk is the possibility that an unforeseen event will arise and negatively affect stock prices. Event risks can either be internal (i.e. when a company defaults on debt) or external (natural disasters).

Companies are often able to minimize the impact of many external event risks by taking out a relevant insurance policy. With that said, many events are not insurable, such as an unexpected terrorist attack.

Regardless of whether a company can insure against a certain event risk or not, such events can still have an impact on the share price of the company – even if it is only in the short term.

Event risks are often hard to predict as an investor, especially external events. Internal events can sometimes be more foreseeable as investors can track the activities of the management of the firm. 

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