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Photo: Mint
Photo: Mint

What is market volatility and why it bothers investors

A stock or is said to be volatile if its price moves up and down frequently and by a substantial amount

In capital markets parlance, volatility refers to a rapid change in price. A stock or is said to be volatile if its price moves up and down frequently and by a substantial amount. In securities markets, it’s the downward volatility that bothers investors more. One way to measure volatility is by calculating the standard deviation of a set of returns. This shows the margin by which price shifts away from the mean. In case of equity, the short-term price returns tend to be volatile as daily prices get impacted by news flow, sentiments and random events.

As the daily price volatility is not representative of the fundamental factors contributing to price, for long-term investors, it is advisable to focus on long term volatility of a security.

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