Timing risk definition
/What is Timing Risk?
Timing risk is the uncertainty associated with buying or selling a security in order to take advantage of high or low points in the market price. The outcome can reduce the value of an investor's portfolio due to buying at an excessively high price or selling at an excessively low price. An investor that tries to time the market to align his buying and selling activities with low and high points in market prices usually does not succeed, and instead generates a lower total portfolio valuation than a more passive investor.
Related AccountingTools Courses
Example of Timing Risk
For example, an investor experiences timing risk when she sells off her entire portfolio in anticipation of a market correction, after which she plans to buy back the shares at a lower price. She incurs the risk that she will not sell her portfolio at the point when the value of the securities is at their highest point. She also incurs the risk that she will not repurchase at the precise moment when share prices are at their lowest point.