An unexpected post on social media caused the prices of 22 different companies’ stocks to immediately increase by 10 to 15 percent. This occurrence is best described as an example of ________ risk.

Question

BlackTom AI · Accepted Answer

The scenario describes a broad, simultaneous price increase across 22 different companies' stocks following a single unexpected social media post. This points to a risk that affects nearly all assets in the market, rather than risks tied to a single company or industry.

Option by option analysis:
- expected: This is not a standard category of risk in this context. Expected returns and the idea of investing to earn them don’t describe the mechanism of broad, simultaneous price movement. 
- portfolio: Portfolio risk refers to the overall risk of a collection of investments, which depends on the correlations among them; however, the example emphasizes a market-wide factor affecting many stocks at once, not the risk inherent to a specific portfolio composition. 
- unsystematic: Unsystematic (idiosyncratic) risk is the risk specific to an individual asset or a small group of assets. The event here impacts a large number of firms, not just one, so it cannot be blamed on unsystematic risk. 
- market: Market risk (also known as systematic risk) is the risk that affects the entire market or a broad segment of it due to macro factors. A single exogenous event causing widespread price moves across many stocks exemplifies market risk. 
- nondiversifiable: This term is another way to describe market/systematic risk—the part of risk that cannot be eliminated through diversification. While true that market risk is nondiversifiable, the phrasing in the question aligns with classifying the event as market risk specifically.

In summary, the broad, simultaneous impact on many stocks is characteristic of market (systematic) risk, whereas the other options refer to risks that are either idiosyncratic, portfolio-specific, or nonstandard in this context.

BUSFIN 3220 AU2025 (2110) Exam 3 - Requires Respondus LockDown Browser

An unexpected post on social media caused the prices of 22 different companies’ stocks to immediately increase by 10 to 15 percent. This occurrence is best described as an example of ________ risk.

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