You own shares in a start-up internet company. If large swings in the stock market increase financial investors' concerns about market risk, then the price of your shares will __________, holding other factors constant.
Business · High School · Thu Feb 04 2021
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When financial investors are concerned about market risk, which refers to the risk of losses due to factors that affect the entire market, they tend to be more risk-averse. In other words, they are less willing to invest in securities that are perceived as risky, preferring instead to hold safer assets such as government bonds or hold cash. As a result, if large swings in the stock market (volatility) increase investors' concerns about market risk, the demand for riskier assets, like shares in a start-up internet company, is likely to decrease. This decrease in demand, holding other factors constant (such as the company's performance, prospects, or economic conditions), can lead to a fall in the price of those shares.