What does market risk refer to in finance?

Market risk specifically refers to the potential for an investment's value to decrease due to fluctuations in the overall market. This encompasses changes triggered by various factors, including economic conditions, political events, and market sentiment. When investors face market risk, they understand that the prices of their investments can rise or fall based on external market movements, independent of the performance of the individual asset.

For example, if the stock market experiences a downturn due to an economic recession or geopolitical tensions, even well-performing companies may see their stock prices drop as investors react to the broader market trends. Recognizing market risk is essential for investors to adequately prepare their portfolios and manage their potential losses related to market volatility.

The other concepts mentioned, such as job loss, interest rate fluctuations, or changes in corporate leadership, pertain to different areas of risk that do not directly relate to the value fluctuations of investments driven by overall market conditions.