Event Risk refers to the possibility that a sudden, unexpected event could negatively impact a companyís financial health, stock price, or overall market performance. These events are typically beyond the companyís control and can arise from economic, political, natural, or corporate developments.

Definition:
Event Risk measures the potential for significant losses due to unforeseen occurrences that disrupt normal operations or investor confidence. Such risks are unpredictable and can cause sharp price movements or volatility in the financial markets.

Types of Event Risks:
- Corporate Events: Includes mergers, acquisitions, bankruptcies, or management fraud that may affect a companyís valuation.
- Economic Events: Recession, inflation, or monetary policy changes impacting the broader economy.
- Geopolitical Events: Wars, political instability, or sanctions affecting trade and global supply chains.
- Natural Disasters: Earthquakes, pandemics, or other calamities that disrupt business operations.
- Regulatory or Legal Events: Sudden changes in government policies or court rulings that alter business dynamics.

Example:
If a pharmaceutical company faces a regulatory ban on one of its key drugs, its stock price could decline sharply. Similarly, a geopolitical conflict can trigger volatility across global markets ó both instances represent event risk.

Impact on Investors:
Event risks can lead to market volatility, liquidity constraints, and valuation changes. Investors might face short-term losses, particularly if the event undermines earnings expectations or business continuity.

Mitigation Strategies:
- Diversifying across asset classes and geographies.
- Using hedging instruments like options or futures.
- Conducting scenario analysis to understand potential outcomes.
- Maintaining strong risk management frameworks.

Conclusion:
Event Risk is an unavoidable aspect of investing, reflecting the uncertainty inherent in financial markets. By understanding and managing these risks, investors can safeguard their portfolios and enhance long-term stability despite unpredictable external shocks.