A volatile market is one in which the prices of goods and services fluctuates time to time. Volatility of a market is the tendency of a market to change its value over a period of time.
Volatility and Stock Market
The uncertainty in the movement of stock prices gives rise to speculation among the stock market investors. The higher the volatility in a market, greater is the risk associated with the market and with the risk comes the prospect of greater returns.
Caluculation Method :
Volatility in markets is measured by the standard deviation over a period of time, which is the square root of the average squared deviation from the mean of various stocks.
Causes of Volatility
The equity market is highly volatile while the debt markets are less volatile. Various factors affect the volatility in markets. The factors beyond the control of the various companies whose shares are traded in the market are major economic policies, revised taxation laws, etc. Companies having exposure in more than one country face volatility due to currency exchange rates and various events happening in other countries as well.
The investment strategy in volatile markets is to buy the stock when the price is low and sell it when the price is high. SIPs are useful products to overcome the volatility in markets.
