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Volatility in the Stock Market

The term ‘volatility’ implies price variation, and the reasons for its growth are a tumble or appreciation of prices in the stock market. This topic is closely related to the material of chapters 8-10 and appears to be relevant. In present-day developments, there are multiple reasons for significant volatility in the stock market, such as a likelihood of coming lockdown and negative consequences of the epidemic in spring 2020.

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In addition, the process of the current presidential election in the U.S. causes uncertainty, as the rates of both leading candidates, who are Donald Trump and Joe Biden, are almost similar. The declaration of results is being delayed, as votes are being counted. This fact definitely affects stocks, as the final results are highly likely to change the situation in the market. The current condition is described by Otani et al. in the article Tech Stocks Lead Volatile Rally As Election Results Come In (2020). They mark that the uncertainty of presidential election results increases volatility:

“Futures linked to the Nasdaq-100, which heavily weights shares of big tech companies, advanced 3.3%, after earlier darting higher so quickly that trading was briefly halted. S&P 500 futures rose 1.4%, while Dow Jones Industrial Average futures gained 0.5%” (Otani et al., 2020, para. 2).

Interestingly, it appears to be extremely difficult to predict the outcome of the election. Trump claimed he would win his opponent and accused Democrats of attempting to “disenfranchise” his voters (Otani et al., 2020, para. 4). Therefore, in case of Biden’s victory, the previous president is determined to solve this issue via the Supreme Court. However, the votes, which have been counted till this moment, show that Biden has strong chances to defeat Trump whether large states support his candidature. Julien Scholnick precisely describes the current situation: “It’s very difficult to predict some of these political situations and what the market reaction will be even if you knew the outcome in advance” (as cited in Otani et al., 2020, para. 23). This way, the aforementioned uncertainty is an illustrative example of such an event as volatility.

Reference

Otani, A., Banerji, G., & Ramkumar, A. (2020). Tech stocks lead volatile rally as election results come in. The Wall Street Journal. Web.

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StudyCorgi. 2022. "Volatility in the Stock Market." March 28, 2022. https://studycorgi.com/volatility-in-the-stock-market/.

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StudyCorgi. (2022) 'Volatility in the Stock Market'. 28 March.

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