Stock market volatility represents the level of uncertainty and risk in the financial markets. Higher levels of market volatility imply greater swings in asset prices, while lower levels indicate more stable market conditions.
The CBOE Volatility Index, or VIX, is a measure of expected volatility in the S&P 500 index over the next 30 days. It is sometimes referred to as the “fear gauge.” The VIX generally spikes during periods of uncertainty and market turmoil.
Historical volatility is the amount that a security’s price has moved above or below its average value over a given time period. It can be useful for comparing securities, because it provides real-world data about the variability of returns over a specific time frame. However, history can’t predict future performance, so it’s important to distinguish between normal volatility and a sign of underlying problems with the market or company.
Unsettled Policies
Political turmoil, economic uncertainty, and geopolitical events can trigger volatility. In particular, large shifts in policy can unsettle investors because they might not know how long the changes will last, how strictly they’ll be enforced, or who they’ll affect. These are known as systemic risks, and they can cause stock prices to fluctuate significantly. Unsystematic risks are mitigated by diversification strategies, but they don’t eliminate them entirely.