fear premium investment & finance definition

A rise in prices based on the fear that an event will happen. For example, a fear premium was present in the crude oil market in the months leading up to the United States’ military action against Iraq in March 2003. Prices rose because of fears that a war would severely interrupt the supply of oil to the market, which would drive up prices. Once fears abated, prices fell substantially and quickly, often by as much as 10 to 20 percent. Fear premiums can occur in any market.