Market Risk Law and Legal Definition

Market risk is the risk associated with market wide variations. [In re Executive Telecard Sec. Litig., 979 F. Supp. 1021 (D.N.Y. 1997)].

It is the tendency of stock prices to decrease due to the change in value of the market risk factors. Stock prices change in the same direction which is caused by something that affects returns on all stocks in the same manner such as a war or an interest rate change. Standard market risk factors are stock prices, interest rates, foreign exchange rates, and commodity prices.

However, there will be no market risk if changes in market price cannot have any effect on the transaction. [United States v. Regan, 937 F.2d 823, 828 (2d Cir. 1991)].

Market risk is also known as systematic risk or undiversifiable risk.