When asking many retailer investors what is a risk, their answers often refer to downside risk, which is about asset price falling. However, a risk is not merely about price falling, it is about the variance of price changes including both rises and falls. Therefore, not only during the bad time, also during a good time as well, the risk by definition is high since the changes are much more volatile than normal time. A stock is much riskier when the company is about to release its earnings report every quarter. Before a company's earnings report day, the probability of beating the estimate and the probability of failing to meet the estimate are equal, since the market has used available public information existing to price the stock, the stock price should be seen as a fair price at the point before the earnings report and could be treated as the mean. Once the earnings report is released, the stock price will adjust around the mean; because the adjustment could be very volatile, by definition, the risk at the point when the earnings report is release is significantly high.
On the other hand, if a stock price falls by 50% in one month due to the bad environment, many retail investors will say the market risk is great. The risk is definitely large, but it is not necessarily greater than earnings report releases during a good period. If there are 25 trading days in a month, the stock price only needs to fall by approximately 3% every trading day in order to fall by 50% in one month, so every trading day, it is about 3% change, and comparing with 10% (or even higher) change after earnings report releases, the variance is smaller and the risk is lower by definition.
To conclude, when experiencing a bad market environment, it does not mean we are facing a higher risk.
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