Risk Asset

AAA

DEFINITION of 'Risk Asset'

Any asset that carries a degree of risk. Risk asset generally refers to assets that have a significant degree of price volatility, such as equities, commodities, high-yield bonds, real estate and currencies. Specifically in the banking context, risk asset refers to an asset owned by a bank or financial institution whose value may fluctuate due to changes in interest rates, credit quality, repayment risk and so on. The term may also refer to equity capital in a financially stretched or near-bankrupt company, as its shareholders’ claims would rank below those of the firm’s bondholders’ and other lenders.

BREAKING DOWN 'Risk Asset'

Investor appetite for risk assets swings considerably over time. The period from 2003 to 2007 was one of huge risk appetite, as rampant investor demand drove up prices of most assets associated with above-average risk, including commodities, emerging markets, subprime mortgage-backed securities, as well as currencies of commodity exporters such as Canada and Australia. The global recession of 2008 to 2009 triggered massive aversion for risk assets, as capital fled to the quintessential safe-haven of U.S. Treasuries.

Since March 2009, as swings in risk appetite became more pronounced due to global macroeconomic concerns, such as European sovereign debt (in 2010 and 2011) and the U.S. fiscal cliff (in 2012), market-watchers began referring to times when investors have substantial appetite for risk assets as "risk on" periods and intervals of risk aversion as "risk off" periods.

RELATED TERMS
  1. Asset Protection

    The concept of and strategies for guarding one's wealth. Asset ...
  2. Asset Specificity

    The use of a capital good to a narrow purpose. Asset specificity ...
  3. Asset Deficiency

    A situation where a company's liabilities exceed its assets. ...
  4. Troubled Asset

    Assets for which banks have overpaid such as loans that are made ...
  5. Aged Assets

    Equipment that has outlived its useful life. Aged assets might ...
  6. Core Assets

    An essential, important or valuable property of a business without ...
Related Articles
  1. Retirement

    Build A Wall Around Your Assets

    Learn how to protect your money from lawsuits, creditors and other judgment proceedings.
  2. Insurance

    Should You Buy Banks' "Toxic" Assets?

    The Public-Private Investment Progam is part of the government's effort to fix the failing financial sector. But is it a good investment?
  3. Markets

    Intangible Assets Provide Real Value To Stocks

    Intangible assets don't appear on balance sheets, but they're crucial to judging a company's value.
  4. Options & Futures

    Bank Failure: Will Your Assets Be Protected?

    The SIPC and FDIC insure against personal financial ruin when banks or brokerages go belly up.
  5. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  6. Mutual Funds & ETFs

    ETF Analysis: Guggenheim Enhanced Short Dur

    Find out about the Guggenheim Enhanced Short Duration ETF, and learn detailed information about this fund that focuses on fixed-income securities.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI KLD 400 Social

    Find out about the iShares MSCI KLD 400 Social exchange-traded fund, and learn detailed information about its characteristics, suitability and recommendations.
  9. Mutual Funds & ETFs

    ETF Analysis: Guggenheim BulletShrs 2018 HY CorpBd

    Find out about the Guggenheim BulletShares 2018 High Yield Corporate Bond ETF, and get information about this ETF that focuses on high-yield corporate bonds.
  10. Mutual Funds & ETFs

    ETF Analysis: PowerShares DWA SmallCap Momentum

    Find out about the PowerShares DWA SmallCap Momentum Portfolio ETF, and explore detailed analysis the fund's characteristics, suitability and recommendations.
RELATED FAQS
  1. Is my IRA/Roth IRA FDIC-Insured?

    The Federal Deposit Insurance Corporation, or FDIC, is a government-run agency that provides protection against losses if ... Read Full Answer >>
  2. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  3. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
  4. What are common delta hedging strategies?

    The term delta refers to the change in price of an underlying stock or exchange-traded fund (ETF) as compared to the corresponding ... Read Full Answer >>
  5. How does being overweight in a particular sector increase risk to a portfolio?

    An investor who is overweight in a particular sector risks a loss in value for the portfolio if there is a downturn in that ... Read Full Answer >>
  6. What are the primary risks an investor should consider when investing in the retail ...

    The retail sector consists of companies operating in multiple industries such as specialty retail, general retail, food and ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  2. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  3. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  4. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
  5. Widow's Exemption

    In general terms, a widow's exemption refers to the amount that can be deducted from taxable income by a widow, thereby reducing ...
  6. Wedding Warrant

    A warrant that can only be exercised if the host asset, typically a bond or preferred stock, is surrendered. Until the call ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!