What is ‘Headline Risk’
The possibility that a news story will adversely affect a stock’s price. Headline risk can also impact the performance of the stock market as a whole.
Explaining ‘Headline Risk’
For example, in the aftermath of the housing crisis, mortgage lenders such as Bank of America, JP Morgan Chase and CitiGroup faced significant headline risk.
One way a company can mitigate headline risk is through effective public relations campaigns. Successful public relations efforts can promote positive images of a company that can help counteract any negative stories as well as provide swift damage control if such a story is released. Individual investors can counteract headline risk by using a buy-and-hold investing strategy that ignores the short-term changes in the market that are triggered by headlines.
Further Reading
- Catering to investors through security design: Headline rate and complexity – academic.oup.com [PDF]
- Are oil price news headlines statistically and economically significant for investors? – www.tandfonline.com [PDF]
- Stock price reaction to news and no-news: drift and reversal after headlines – www.sciencedirect.com [PDF]
- Headline Risk: Unexpected Price Changes and Answering to the Folks at the Top. – search.ebscohost.com [PDF]
- Asian Miracle, Asian Tiger, or Asian Myth? Financial Sector and Risk Assessment through FSAP Experience: Enhancing Bank Supervision in Thailand – papers.ssrn.com [PDF]
- The last temptation of risk – www.jstor.org [PDF]
