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Understanding Event Risk: Legal Insights and Implications
Definition & Meaning
Event risk refers to the possibility that the price of a stock will fluctuate due to a specific event that impacts only that security. This can include negative occurrences, such as a court ruling against the company, or positive surprises, like an unexpected rise in earnings. Event risk is often categorized as unsystematic risk or residual risk, which means it is unique to individual securities rather than affecting the entire market.
Table of content
Legal Use & context
Event risk is frequently discussed in the context of securities law and investment practices. Legal professionals may encounter this term when advising clients on investment strategies or during litigation involving securities fraud. Understanding event risk is crucial for investors and companies alike, as it can influence stock performance and investment decisions. Users can manage their investment portfolios using legal templates from US Legal Forms, which may include forms related to investment agreements or disclosures.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A technology company faces an adverse court ruling regarding patent infringement. As a result, the stock price drops significantly due to investor concerns about future earnings. (hypothetical example)
Example 2: A pharmaceutical company unexpectedly announces a breakthrough in drug development, leading to a surge in its stock price as investors react positively to the news. (hypothetical example)
Comparison with related terms
Term
Definition
Key Differences
Systematic Risk
The risk inherent to the entire market or market segment.
Unlike event risk, systematic risk affects all securities and cannot be eliminated through diversification.
Unsystematic Risk
The risk associated with a specific company or industry.
Event risk is a type of unsystematic risk, focusing on specific events affecting individual securities.
Common misunderstandings
What to do if this term applies to you
If you are an investor concerned about event risk, consider diversifying your portfolio to mitigate potential losses. You can also explore US Legal Forms for templates related to investment agreements and disclosures. If you face complex investment issues, seeking advice from a qualified legal professional may be necessary.
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