Jake Tuff 
During periods of market volatility, many investors get spooked and may question their long-term investment strategies. While this may seem counterproductive, it’s important to remember that trying to time the market is extremely difficult.
One strategy that can help manage market volatility is dollar-cost averaging. This involves investing a set amount regularly, such as monthly, to reduce the impact of price fluctuations.
Economic data
Investing during volatile markets can feel challenging, especially for those with a retirement or savings goal. But panicking or making quick decisions based on one event is not the best course of action. Instead, you should consult a financial professional to review your investing time horizon, risk tolerance and personal circumstances.
Market volatility is often a precursor to broader economic conditions. Economic indicators, like monthly jobs reports, inflation data and consumer spending, can influence market performance. Similarly, government policies, including trade agreements and legislation, can have a direct impact on the economy and stock prices.
Downward market volatility also provides an opportunity for investors to purchase additional shares of companies they believe will perform well in the long run at lower prices. This can improve their average cost-per-share and improve portfolio returns when markets rebound.
Company performance
Market volatility affects company performance, and can be a sign of the health of an economy. High volatility may signal that a country’s growth is slowing down, while lower volatility could indicate a healthy economy. This is why it is important to stay invested during times of market volatility, and not let short-term losses derail your long-term investing plan.
Downward market volatility offers investors an opportunity to buy stocks at lower prices. This can improve their average cost-per-share and enhance portfolio performance when markets rebound. However, it’s important to remember that volatile stocks tend to underperform in the long run, so it’s important to focus on fundamentals when making investment decisions.
Investors must also be aware of the impact of media coverage and online forums on market volatility. Studies have shown that pessimistic media coverage predicts market drops, and Tetlock has found that online forum investor sentiment can significantly change investors’ risk aversion. These changes may also cause rumors to spread rapidly, and affect the volatility of individual stocks.
Government policies
Market volatility can be influenced by government policies, which can increase market uncertainty and lead to higher risk. This is true for entire markets, such as the energy sector, or individual stock market sectors, such as oil distribution companies. In addition, specific events can create high market volatility within a sector. For example, OPEC’s decision to limit oil production can affect the share prices of oil-related stocks.
In the short term, market volatility can cause investor anxiety, especially if you need to sell investments. However, a long-term investment strategy should not be impacted by short-term fluctuations. Rather, it should focus on investing in a comprehensive financial plan that is designed to help you achieve your goals over time.
When markets are down, it can offer investors the opportunity to purchase their favorite stocks or asset classes at lower valuations. This can improve portfolio returns in the future. However, it’s important to be aware of potential risks and avoid speculative trading.
Investor sentiment
Investing in volatile markets can be a challenge, but it is important to remain calm and stick with your long-term plan. Market volatility is a normal part of investing and is caused by many factors, including investor sentiment. During periods of high market volatility, investors can lose value or gain large amounts. But if you take a longer view, this volatility can be a great opportunity to buy stocks at lower prices.
The root cause of abnormal volatility is the combination of investors’ misreading of fundamental information and feedback trading behavior. When investors misread fundamental information, they will be unable to correctly observe the value of their assets and will be biased in their feedback trading decisions. This results in a price misalignment that will amplify over time.
This study decomposes market volatility into continuous and jump volatility and analyzes their influences on trading sentiment. The influence of investor sentiment on jump volatility is less significant than its effect on continuous volatility.
