DEFINITION of 'Headline Risk'

Headline risk is the possibility that a news story will adversely affect a stock's price. Headline risk can also impact the performance of a specific sector or the stock market as a whole. For example, News of a trade war between the United States and China created headline risk for the broader financial markets in 2018.

BREAKING DOWN 'Headline Risk'

Headline risk can be mitigated 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. (To learn more, see: 6 Tips for Spinning a PR Nightmare)

Managing Headline Risk

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. For instance, instead of focusing on day-to-day stock price fluctuations, investors should asses the performance of their portfolios at the end of each quarter and make any necessary changes accordingly.

A 24-hour news cycle means investors are continuously exposed to headlines that may negatively impact their investments. Instead of reading every financial news story, investors should focus on just a few credible news sources that provide reliable information or conduct their own research. There is a plethora of free information online for investors to learn the basics of financial and technical analysis. (For more, see: The Basics of a Financial Analysis Report)

Example of Company Headline Risk

Suppose a pharmaceutical company releases a new drug called “cholestride” that dramatically reduced a person’s cholesterol levels.

In response to the drug, a fast food consortium organizes for a study that finds a possible, but not a conclusive link between cholesterol and liver damage. This creates a headline risk that must be managed to prevent it from having a material impact on the company's stock price. (See also: 10 Risks that Every Stock Faces)

Example of Sector Headline Risk

In the aftermath of the 2007 to 2010 subprime lending crisis, mortgage lenders such as Bank of America, JPMorgan Chase & Co, and Citigroup faced significant headline risk from other financial institutions collapsing or coming under severe financial pressure.

After the collapse of Lehman Brothers and bailout of prominent financial institutions including Fannie Mae and Freddie Mac in 2008, investors had little confidence in the stability of the financial system and any negative headline relating to the financial sector had the potential to spark a stock selloff in financial stocks. (See also: The Collapse of Lehman Brothers: A Case Study)

  1. Story Stock

    A story stock is a stock that is trading markedly higher on optimistic ...
  2. Accepting Risk

    Accepting risk occurs when a business acknowledges that the potential ...
  3. Micro Risk

    Micro risk is type of political risk that refers to political ...
  4. Media Effect

    The media effect describes how certain stories that the media ...
  5. Crisis Management

    Crisis management is the identification of threats to an organization ...
  6. Professional Risk Manager - PRM ...

    Professional risk manager is a designation awarded by the Professional ...
Related Articles
  1. Investing

    The Risks Associated with Common Investments

    Investing inherently involves some risk. Here are some of the different types of investment risks.
  2. Tech

    The Importance of Healthcare Risk Management

    Risk management is especially important in healthcare because human lives might be on the line. Here are some strategies to map out a plan.
  3. Investing

    6 Risks Threatening Your Portfolio Today

    Factoring in these risks is crucial when building a portfolio.
  4. Investing

    Credit Suisse Losses: Indicating Bigger Trouble? (CS)

    The banking sector's dependence on the energy sector is just one of many factors that have experts worried about the banking industry's performance.
  5. Personal Finance

    5 Things You Should Know About Job Hunting After 50

    This infographic disproves 5 common myths regarding starting a second career later in life.
  6. Small Business

    Identifying and managing business risks

    Running a business comes with a lot of associated risks, but there are an equal number of ways to prepare for and manage them to lessen their impact.
  7. Investing

    Low-Risk vs. High-Risk Investments for Beginners

    Understanding risk is key to better investing. Learn how to determine where risk lies and the difference between low risk and high risk are crucial.
  8. Managing Wealth

    Offset Risk With Options, Futures And Hedge Funds

    Though all portfolios contain some risk, there are ways to lower it. Find out how.
  9. Insurance

    Examples of Adverse Selection in the Insurance Industry

    Find out what the term "adverse selection" refers to in the insurance industry, and learn how insurance companies protect themselves from adverse selection.
  1. What are some examples of risk management techniques?

    Understand what risk management is in business and why it is a necessary component of ongoing business planning, and review ... Read Answer >>
  2. What is the difference between risk avoidance and risk reduction?

    Learn what risk avoidance and risk reduction are, what the differences between the two are, and some techniques investors ... Read Answer >>
  3. What can a multinational company do to minimize exposure to political risk?

    Political risk is the risk that a country will make political decisions that have adverse effects on corporate profits. Learn ... Read Answer >>
  4. Financial Risk vs Business Risk

    Understand the key differences between a company's financial risk and its business risk – along with some of the factors ... Read Answer >>
Hot Definitions
  1. Initial Coin Offering (ICO)

    An Initial Coin Offering (ICO) is an unregulated means by which funds are raised for a new cryptocurrency venture.
  2. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve ...
  3. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  4. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  5. Restricted Stock Unit - RSU

    A restricted stock unit is a compensation issued by an employer to an employee in the form of company stock.
  6. Bitcoin

    Bitcoin is a digital or virtual currency that uses peer-to-peer technology to facilitate instant payments.
Trading Center