Volatility refers to how much and how quickly stock prices move up or down over a certain period.
High volatility means large, rapid price swings, Low volatility indicates relatively stable, slower movements.
Volatility is a natural part of the market and often reflects uncertainty, changes in sentiment, or significant events.
Why Does Volatility Happen?
- Economic News: Data such as inflation, GDP reports, or shifts in government policy can impact investor confidence.
- Company Earnings: Strong or weak quarterly results can cause sudden price reactions.
- Global Events: Wars, pandemics, political unrest, or natural disasters often lead to market instability.
- Interest Rate Changes: Central bank decisions, like increasing or reducing interest rates, influence investment flows.
- Investor Sentiment: Fear and speculation can trigger abrupt buying or selling, leading to sharp movements.
How Is It Measured?
Volatility is commonly measured using statistical tools such as the standard deviation of returns.
In India, the India VIX (Volatility Index) reflects the market’s expectation of near-term volatility based on Nifty option prices.
Why It Matters:
Understanding volatility helps investors manage risk more effectively. While high volatility can signal uncertainty, it also creates opportunities for those who are prepared.
Long-term investors often stay focused on fundamentals, while short-term traders may use volatility to their advantage.
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