Volatility 101: An Introduction to Market Volatility
Source: Visual Capitalist
Why are certain times more volatile than others?
In the short term, volatility is driven by changes in demand, which is largely related to changes in earnings expectations. These expectations can be affected by:
- Earnings reports
- New economic data
- Company leadership changes
- New innovations
- Herd mentality
- Political changes
- Interest rate changes
- Market sentiment swings
- Other events (economic, political, etc.)
Often the media and investors assign certain narratives to price changes, but the reality is that the stock market is very complex, and has many underlying factors that drive movements.
What ultimately matters for volatility is demand: if stocks move up or down on a given day, we can say definitively that demand for stock was more (or less) than stock supply.