Sigma, volatility is the measure of standard deviation from the average. In other words, it is the fluctuation in the price of an asset in the stock market. This article discusses volatility in the Indian stock markets of late.
The
Indian stock market is making frequent headlines these days. Market crash of May
2006 took many by surprise and many s are of the view that India's stock
market growth story is over. The extreme fluctuations or volatility in the Indian
markets during the month of May 2006 became a concern for the investors and put
the regulators in a speculative mode once again. The volatility of Sensex and
Nifty became the topic of discussion not only among the practitioners, but also
among the academicians.
Volatility
means how drastically the price of an asset tends to rise and fall. For instance,
a volatile stock would see very large swings in its stock price. Volatility in
the price of financial asset and its potential to undermine the stability of the
market has been a subject of concern in recent years. The Indian bourses in recent
days exhibited extreme fluctuations, which is a worrisome development. When we
talk about volatility of the stock market, foreign exchange market or money market,
it simply refers to the variation or fluctuation from its average over a period
of time. It measures the extent of deviation of the current price from its average
price over a period of time. The greater this deviation is the greater is the
volatility. In general, this distance from the average is computed by standard
deviation. So, if someone is talking about volatility or risk, he is referring
to standard deviation. Volatility is a matter of concern both for the retail investors
and the regulators of the financial markets as it represents uncertainty and risk. |
