What are the risks of equity investments Money Tips

Category: Money tips Release Date: 2007-05-19

Risk is the likelihood of certain adverse results from the probability of unfavorable outcome to represent. In practice, the variability of the forecast results, including both a good or bad, each one also may exist in a variety of circumstances of each case the likelihood (probability size) is also different, in order to reflect the forecast results This diverse and complex variability, the concept of risk is generally defined as "the probability distribution of the various possible outcomes."

â‘?This definition reflects the actual risk of becoming a complete and practical concepts:

(1) risk assessment is always to a certain expected results (the weighted average of all possible values to a probability weights) as the center;

(2) deviate from the expected results of the various possible outcomes, including two aspects of getting better or worse;

(3) risk is to the expected results as the center of the various possible outcomes from the poly-degree of probability of occurrence, the probability distribution of the more intensive, and thus the smaller the variability, the smaller the risk. Act as an investment the size of the risk, depending on the investment yield of the various possible rates of return and the likelihood of the distribution of intensity, the distribution of the more intensive, and actual results and expected results of the deviation may be smaller, and thus the smaller the risk.

The risk of stock investments by specific categories, including the systematic risk and non-systemic risk two parts.

Systemic risk is caused by some kind of general factors, all of the stock market gains and losses on both the risk of an impact. For example, changes in interest rates, equity expansion, indices to new highs, the stock will form political turmoil Dengjun systemic risks. Systemic risk to the degree of influence of individual stocks there is a difference, and their differences can be roughly in the β coefficient determined by the individual stocks (see the book B7 · 1 "market perform" section). β coefficients are usually calculated by regression analysis method, the formula is: Y = α + βX + e where Y indicated that the volatility of individual stocks; α that the particular individual stocks, the average level of volatility, reflecting the non-systemic risks; β or β coefficient, in the coordinates The slope for the regression line; X said that large fluctuations of the city; e for the regression equation residuals (random errors), all e average to zero.

e the value of a small can be ignored, α value is also less under normal circumstances, there are special circumstances are often due to be investigated, the compilation of statistics can be properly excluded, so that the style can be simplified to: Y = βX; β = YAX. A certain period of time as long as the recent closing index and the stocks closing price percentage change in the regression analysis of sample substitution, we can calculate the β value. β coefficient of the higher shares of their relatively high level of systemic risk, β coefficient is equal to a stock, its systemic risk is equal to the average market risk.

Non-systematic risk is caused by some special factors, affects only the part or the risk of individual stock gains and losses. Non-systemic risk primarily from industry and enterprise development and status of the special factors, the dealer behavior and trading systems, the security status.

The risk of equity investments classified according to characteristic, mainly:

(1) policy risk, macro-economic policies by the state regulatory policy changes and stock market risks;

(2) economic risk, that is, changes in the economy, interest rates and inflation rates determined by such factors as profitability and preserve and increase the capacity of the stock changes;

(3) market risk that the stock price level and the impact of fluctuations on the stock gains and losses;

(4), industry risk, changes in the economy and industry by industry characteristics of the development risks;

(5) the risk, by the company management level and chance events determine changes in the level of the company's profitability;

(6), making the risk caused by the behavior of individual stocks dealer price fluctuations and so on. In fact decided to increase volatility in each of the essential factors and the price level itself can lead to the formation of a special risk.