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Another way macro risk is used is to differentiate between countries as potential places to invest. In this meaning, the level of a country's macro risk differentiates its level of political stability and its general growth opportunities from those of other countries, and thus helps identify
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Macro risk associated with stocks, funds, and portfolios is usually of concern to financial planners, securities traders, and investors with longer time horizons. Some of the macroeconomic variables that generate macro risk include
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Understanding that macro risk factors influence the intrinsic value of a particular investment is important because when the factors change values, errors can be introduced in the corresponding intrinsic value
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of future company earnings are used to estimate the current and expected value of the investment being studied. Macro risk factors include any economic variables that are used to construct these estimates.
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may try to reduce the overall exposure of their investments to different macro risk factors in order to reduce the impact of economic shocks. This may be accomplished using commercial
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Models that incorporate macro risk are generally of two types. One type focuses on how short-term changes in macro risk factors impact stock returns. These models include the
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173:. For example, economic turbulence that leads to higher or lower levels of approval for the president's policies would be a form of this macro risk.
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or political factors. There are at least three different ways this phrase is applied. It can refer to economic or financial risk found in
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of countries, often updated annually, provide insight into their relative political and social stability and economic growth.
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Chong, James; Halcoussis, Dennis; Phillips, G. Michael (2011). "Does market volatility impact presidential approval?".
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preferred countries for investment either directly or through country or regionally oriented funds. Such analysis of
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Burmeister, Edwin; Wall, Kent D. (1986). "The arbitrage pricing theory and macroeconomic factor measures".
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is also used for the purposes of credit insurance on foreign sales and in other financial analysis such as
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A new application of macro risk is essentially a converse of the first two meanings; it refers to how
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Agmon, Tamir; Findlay, M. Chapman (Nov–Dec 1982). "Domestic
Political Risk and Stock Valuation".
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Tainer, E.M. Using
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which influence the volatility over time of investments, assets, portfolios, and the
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models. Used primarily by those focusing on longer term investments including
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Aretz, Kevin; Bartram, Söhnke M.; Pope, Peter F. (June 2010).
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The other models that incorporate macro risk data are
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312:The Economist’s Guide to Economic Indicators
79:, and even prices of raw materials such as
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197:10.1111/j.1540-6288.1986.tb01103.x
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117:, these models are examples of
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269:. Retrieved
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90:and the
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329:(PDF)
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