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A measure of risk based on the standard deviation of the asset return. Volatility is a variable that appears in option pricing formulas, where it denotes the volatility of the underlying asset return from now to the expiration of the option. There are volatility indexes. Such as a scale of 1-9; a higher rating means higher risk.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.


A measure of a security's stability. It is calculated as the standard deviation from a certain continuously compounded return over a given period of time. It is an important measure in quantifying risk; for example, a security with a volatility of 50% is considered very high risk because it has the potential to increase or decrease up to half its value. Volatility may influence the type of investments one makes: one may directly invest in non-volatile securities, such as a certificate of deposit, but highly volatile securities lend themselves more to short selling and other forms of hedging.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved


The term volatility indicates how much and how quickly the value of an investment, market, or market sector changes.

For example, because the stock prices of small, newer companies tend to rise and fall more sharply over short periods of time than stock of established, blue-chip companies, small caps are described as more volatile.

The volatility of a stock relative to the overall market is known as its beta, and the volatility triggered by internal factors, regardless of the market, is known as a stock's alpha.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
Table 4 summarizes the returns volatilities of gold, exchange rate, and sectoral indices throughout the sample period.
We find that the average trade openness and financial account balance with volatilities of domestic credit and investment have a significant effect on the growth volatility.
Taylor SJ, Yadav PK, Zhang Y (2010) The information content of implied volatilities and model--free volatility expectations: evidence from options written on individual stocks.
Looking at the earlier periods, we see rather stable volatilities in 1980-92 in Belgium, Germany, Ireland, Austria and the UK, and also since 1986 for the Netherlands.
Typically, implied volatilities rise in times of financial distress, and drop when markets boom.
However, parameters [Y.sub.1] and [Y.sub.4] indicate a long run influence on future volatilities because of the persistence (4) of durations.
(20) Also, finance theory often implies specific conditional volatility distributions, and/ or conditional correlations, between the asset volatilities and the volatility of the systematic risk factors.
The lower volatilities reduced the magnitude of the stock price increases on the top branch.
Finucane, 1989, "Black-Scholes Approximations of Call Option Prices with Stochastic Volatilities", Journal of Financial and Quantitative Analysis, 24:527-532
Both volatilities went up in the 1970s and have come down since.
The statistics in Table 2 indicate that the correlation between monthly returns, return volatilities, and trading volume volatilities in the two Exchanges are 0.552, 0.377, and 0.502 respectively over the entire sample period.