Prevalent Global Risk Factors
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What global risk factors are most prevalent in today's market?
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A discussion of the most prevalent global risk factors.
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Question: What global risk factors are most prevalent in today's market?
Huge foreign indebtedness, shifting borders, unstable governments, foreign-exchange problems, tariffs and other trade barriers, corruptions, and technological pirating are just some of the risks facing today's markets. We argue that companies selling in global industries have no choice but to internationalize their operations. To do this, they must make a series of decisions. Because of the competing advantages and risks, companies often do not act until some event thrusts them into the international arena. Someone - a domestic exporter, a foreign importer, a foreign government - solicits the company to sell abroad, or the company is saddled with overcapacity and must find additional markets for its goods. These factors could range from immediate risks, such as tax policies and currency depreciation, to secondary risks, including government instability and trade conflicts.
I believe some of the global risk factors consist of three components: volatility, liquidity and credit. These factors represent the effects of contagion from the impact of common shocks originating in developed financial markets. In the intermediate case of partially segmented capital markets, local and global risk factors will impact domestic prices and quantities as well as the decisions of foreign (and domestic) investors. Global factors are shown to have an important effect on excess returns in markets, signaling a certain degree of integration between the stock markets of industrial and emerging economies. However, local factors also influence excess returns in equity markets. Interestingly, this analysis seems to reveal that local factors ...
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