A type of risk that is associated with equity in all its types. It is a financial risk that an equity holder or investor is exposed to as long as a long position continues in such equity holdings or investments. Equity risk often refers to equity in publicly held companies through the purchase of stocks, or private equity in privately held companies through purchase of a share in ownership. This risk does not usually refer to the risk associated with direct holdings of real estate or building equity in properties.

Manifestation of equity risk includes exposure to losses from share price falls, lower than expected dividends or no dividends at all.

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.

This risk may arise from entering into a partnership (by contribution of equity shares entailing ownership stake and corresponding rights and obligations) for the purpose of carrying out or participating in a specific business, commercial, or financial activity, for which the provider of finance (holder of equity share, participatory party, partner, etc.) shares in the business risk of a partnership venture.

Equity risk is a type of a broader category of risk known as a market risk.