Understanding Market Volatility

Volatility describes the dispersion of returns over a period. It is a measurement of movement, not of direction or quality.

Volatility clusters: quiet periods tend to be followed by quiet periods, and turbulent periods by more turbulence. This is why risk appears to arrive suddenly.

Reacting to short-term volatility is one of the most common sources of realised loss. A written plan set before turbulence is more durable than a decision made during it.