Risk and Return Relating to Investing in Stocks

Risk and Investment Return
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Risk and Investment Return
Investment Risk
Key Risks Associated with Investing in Stocks
Investing in the stock market involves many risks, such as the following. The first is systematic or market risk, which changes depending on a specific marketplace's factors (Kou et al., 2019). Therefore, stock prices are unpredictable because of the various international and local market factors. The second is interest rate risk, whereby its shifts impact various stocks' prices. In addition, when a country's currency is pegged to that of another nation in the market, the independent country's interest rate movements directly influence those of the dependent nation. 
The third one is the global risk, which affects extremely open stock marketplaces, hence impacted by economic matters in significant markets. Such stock marketplaces are exposed to the world’s economic activities, hence should factor in this risk when assessing their risks. The fourth is business risk, whereby a listed firm might become insolvent or experience decreasing profits. Rivalry and poor management are factors that affect a company’s performance, causing a business risk.
Investment Return
Events that can Cause the Price of a Stock to Increase or Decrease
Supply and demand are significant drivers of stock price increase or decrease. The following are other factors that result in an increase or fall in stock prices. The first one is inflation, whereby, as product costs increase, firms’ and customers’ purchasing powers decrease. Therefore, increasing inflation rates make investors vend their stocks for fear of a poor economy. On the contrary, when inflation rates ease, stockholders become economically enthusiastic and buy more stock.
Another event that can cause the price of a stock to increase or decrease is a business's activity. For example, when a firm's end-year financial reports show that it performed well, stockholders' confidence increases; hence they buy more of the company's shares. The increased demand leads to the stock price increase. According to Hirdinis (2019, p. 177), "if there is an increase in a company's stock demand, it will raise the price of the stock in the capital market." On the other hand, when a firm's end-year financial reports show that it performed poorly, stockholders' confidence decreases, resulting in them withdrawing their share...