Major Factors Leading to Volatility in Market-

Major Factors Lweading to Volatility

1-    Region and country economic factors, such as tax and interest rate policy, contribute to the directional change of the market and thus volatility. For example, in many countries, the central bank sets the short-term interest rates for overnight borrowing by banks. When they change the overnight rate, it can cause stock market to react, sometimes violently.

2-    Changes in inflation trends influence the long-term stock market trends and volatility. For example periods of falling P/E ratios tend to relate to rising or higher inflation periods when prices are more unstable. This tends to cause the stock markets to decline and experience higher volatility.

3-    Industry and sector factors can also cause increased stock market volatility.

4-    Volatile exchange rates make international trade and investment decisions more difficult because volatility increases exchange rate risk. Exchange rate risk refers to the potential to lose money because of a change in the exchange rate.

 

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