IntroductionInvestor's investment decisions are based on the stock valuation they made before making the decision. Generally, investors prefer to invest in undervalued stocks and sell their stocks which they consider to be overvalued. There are many different methods of valuing stocks. Additionally, many factors increase stock valuation risk. This article focuses on fundamental analysis used for stock valuation. Fundamental analysis typically uses the price gain method, dividend discount model, or free cash flow model for stock valuation. Rather, we focus on the factors that affect the stock market and stock valuation. Basic TermsStockStock is a security that represents an ownership interest in a company and signifies a requisition on the company's assets and profits ("stock,").Stock MarketThe stock market is a market in which public companies issue or trade their actions. The stock market is also known as the share market. The stock market is a crucial part of the economy because it provides companies with the opportunity to receive capital from the investor in order to give them part ownership of the company (“stock market”). Market RiskMarket risk refers to the risk in which the possibility of an investor suffering losses due to certain factors that influence the performance of the financial market. This can occur in situations such as recession, fluctuating interest rates (“market risk”). It is based on expected earnings instead of recent earnings...... middle of paper ......ets, Institutions & Money, 22, 1202-1216.Damodaran. (2006). Evaluation approaches and measures: a review of theory and evidence.Schwert. (2011). Stock volatility during the recent financial crisis. European Financial Management, 17(5), 769-805.Madura, J. (2011). Financial markets and institutions. (9th ed., pp. 263-293). Cengage Learning Co. Shares. (n.d.). Retrieved from http://www.investopedia.com/terms/s/stock.asp. (nd). Retrieved from http://www.investopedia.com/terms/s/stockmarket.asp market risk. (nd). Retrieved from http://www.investopedia.com/terms/m/marketrisk.asp required rate of return - rrr. (nd). Retrieved from http://www.investopedia.com/terms/r/requiredrateofreturn.asp Harper, D. (2010, 09 04). Use historical volatility to assess future risk. Retrieved from http://www.investopedia.com/articles/06/historicalvolatility.asp