Headline Risk
What Is Headline Risk?
Headline risk is the possibility that a report will adversely influence the price of an investment, like a stock or commodity. Headline risk can likewise impact the performance of a specific sector or the whole stock market.
Understanding Headline Risk
Headline risk is the risk that a news headline or story can influence the price of a stock, sector, or more extensive market. Assume that a pharmaceutical company releases another medication called "Cholestride" that emphatically decreases an individual's cholesterol levels. In response to the medication, a competitor sorts out for a review that tracks down a potential yet not conclusive connection between the new cholesterol prescription and liver damage. This makes a headline risk for Cholestride's producers that must be managed to prevent it from really affecting the company's stock price.
Headlines produced by papers, TV, or online - including social media posts - can moves stock prices. Note that prices can move, even assuming the story is incorrect or deluding, albeit in such cases the prices will generally snap back. Headlines can likewise make positive developments, like the approval of another medication by the FDA or another leap forward.
Headline risk can be relieved through effective public relations (PR) crusades. Fruitful public relations efforts can promote positive pictures of a company that can assist with counteracting any negative stories as well as provide swift damage control on the off chance that such a story is delivered.
Overseeing Headline Risk
Individual investors can counteract headline risk by utilizing a buy-and-hold investing strategy that overlooks the short-term changes in the market that are set off by headlines. For example, rather than zeroing in on everyday stock price variances, investors should asses the performance of their portfolios toward the finish of each quarter and roll out any vital improvements accordingly.
A 24-hour consistent pattern of media reporting means investors are continuously presented to headlines that may negatively impact their investments. Rather than perusing each financial report, investors ought to zero in on just a couple of believable news sources that provide dependable data or conduct their own research. There is a plenty of free data online for investors to gain proficiency with the essentials of financial and technical analysis.
Illustration of Sector-Specific Headline Risk
In the aftermath of the 2007-2010 subprime lending crisis, mortgage lenders like Bank of America, JPMorgan Chase and Co. also, Citigroup confronted critical headline risk from other financial institutions collapsing or coming under extreme financial pressure.
After the collapse of Lehman Brothers and the bailout of prominent financial institutions remembering Fannie Mae and Freddie Mac for 2008, investors lacked trust in the stability of the financial system, and any negative headline connecting with the financial sector could spark a stock selloff in financial stocks.
Features
- Headline risk is that a report will adversely influence a stock's price, where the timing and content of the story is obscure in advance.
- Headline risk most frequently influences individual companies, however can likewise bear down on sectors or the whole market.
- Headline risk can be relieved through public relations (PR) crusades and a long-term strategy from investors that dismisses short-term variances set off by headlines.
