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Market psychology refers to the prevailing sentiment of financial market participants at any one point in time. Investor sentiment can and frequently drives market performance in directions at odds with fundamentals. For instance, if investors suddenly lose confidence and decide to pull back, markets can fall. Greed, fear, expectations, and circumstances are all factors that contribute to markets’ overall investing mentality or sentiment. The ability of these states of mind to trigger periodic “risk-on” and ``risk-off,” in other words boom and bust cycles in financial markets is well documented. Often these shifts in market behaviour are referred to as “animal spirits” taking hold. The expression comes from John Maynard Keynes’ description in his 1936 book, “The Theory of Employment, Interest, And Money.” Writing after the Great Depression, he describes animal spirits as a “spontaneous urge to action rather than inaction.” While conventional financial theory, namely the effi...

Financial risk is a term that can apply to businesses, government units, the financial marketplace as a whole, and the individual. This risk is the risk or likelihood that shareholders, stakeholders, or other fiscal stakeholders will lose money. There are numerous specific risk factors that can be considered as a fiscal risk. Any risk is a threat that produces damaging or unwanted results. Some more shared and diverse financial risks include credit risk, liquidity risk, and operational risk. The Basics of Financial Risk Financial risk is a type of risk that can affect the loss of capital to interested parties. For governments, this can mean they are incapable to regulate economic policy and default on bonds or additional debt issues. Corporations also face the likelihood of default on debt they undertake but may also experience failure in an undertaking the causes a financial weight on the business. Individuals face financial risk when they make conclusions that m...