What is the definition of market risk?

Market risk refers to the uncertainty regarding future market conditions that can affect the overall performance of investments. This type of risk is inherent in all market-traded securities and can arise from various factors such as economic changes, political events, and shifts in investor sentiment. Essentially, even a well-diversified portfolio can be impacted by market-wide phenomena that are beyond an investor’s control.

The other options highlight specific types of risks that do not encapsulate the broader nature of market risk. For instance, the risk associated with real estate investments specifically pertains to the real estate market and is not representative of the overall market risk. The possibility of loss from changes in interest rates focuses solely on interest rate risk, which is just one component of market risk. Finally, the risk associated with individual stock performance is known as idiosyncratic risk or specific risk, which does not capture the full scope of market risk that affects entire markets or segments. Thus, option A is the most accurate characterization of market risk.