A type of risk that reflects the possibility of changes in the market price of equities or equity instruments arising from positions taken by an entity (short position, long position) in equities or equity-based financial or investing instruments. (for more, see: equity risk).
Equity risk arises from investments (investments in equity) such as stock purchases/ holdings (acquired from stock markets) and specific types of projects and portfolio investments that mainly constitute equity elements. This risk involves other types of exposures: market risk, credit risk and liquidity risk, all in relation to the equity investment. Equity risk/ equity investment risk (EIR) is inherent in an entity’s holdings of equity instruments for investment purposes, or direct investments in equity of projects/ portfolios, baskets, etc.
In the context of trading book capital requirements, equity risk refers to the risk of change in market value (MV) of an equity investment.
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