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Causes, Concerns and Consequences of Market Volatility

The words “market volatility” seem to be used now more than ever. One recent report from The New York Times said, “Market Swings Are Becoming New Standard,” a scary sentiment for investors.


One possible explanation for the increased volatility is the use of computerized high frequency automated trading, which accounts for 60 percent of the volume of trades. In addition, it takes much less time today to send and receive information as it did in the past. As a result, information that affects the market spreads at an increased rate, increasing the volatility of the market. In addition, exchange-traded funds that utilize derivatives and leverage or track broad indices are likely contributors to increased volatility.

However, bad economic times can also account for some of the market volatility. With the bank failures of 2008, the Euro crisis anxiety and the general undermining of confidence in the market lately, it’s no wonder we’re experiencing so many ups and downs. Still, experts believe the volatility that results from these factors will eventually be remedied as economic standing improves.

That said, one major concern about the increased market volatility is that investors could be permanently driven away from investing and trading in the stock market because it is unsuitable for their goals. While a higher risk market has a higher possibility for gain, it also has a higher risk for loss, causing most individuals to fear investing their hard-earned money.

According to that New York Times study, the stock market is currently more volatile than it’s ever been. Half of the largest daily price increases, and just over half the largest daily price decreases, occurred within the last three years. Furthermore, there have been six occurrences since 2000 of 4 percent (or higher) intra-day price fluctuations.

No matter what the cause, living in a world of increased market volatility raises one incredibly important concern: fraud. As was discussed in the last post, a volatile market can provide increased opportunities for stock broker fraud. If you believe you have been the victim of fraud, please contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

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