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Feedback Risk

V

Viki2010

Member
I came across a discussion about feedback risk in Sweeting however the definition of what this risk covers is not in scope. Can someone please define "feedback risk"?
 
Sweeting defines feedback risk (7.7.3) as "the risk that a change in price will result in further changes in the same direction", a component of systemic risk. You could consider this a type of market risk/contagion risk. It is the risk that for example, someone influential sells a stock driving down the price which causes others to sell (either by choice or by necessity) further driving down the price. This "knock-on" effect could result in a crash (or v.v. a bubble).
 
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