Legal Definitions - volatility

Volatility refers to the tendency and degree to which the price or value of an asset, investment, or market fluctuates rapidly and significantly over a period. High volatility indicates that prices can experience large, sudden, and often unpredictable changes, while low volatility suggests more stable and gradual price movements.

Here are some examples to illustrate this concept:

• Example 1: A Newly Launched Biotechnology Stock

  Imagine a small biotechnology company that has just gone public, and its stock is trading on the market. Initially, the stock price might surge by 30% in a day after positive news about a drug trial. However, a week later, if the company announces unexpected delays in regulatory approval, the stock could plummet by 25% in a single afternoon. This rapid and substantial up-and-down movement in the stock's value within a short period demonstrates high volatility.

  Explanation: The stock's price is experiencing frequent and significant swings, making its future value uncertain and illustrating the concept of volatility.

• Example 2: Global Coffee Bean Prices

  Consider the international market for coffee beans. If a major coffee-producing region experiences an unexpected drought, the supply of beans could drastically decrease, causing prices to spike by 15% in a matter of days. Conversely, if a new, highly efficient harvesting technique is introduced, leading to an oversupply, prices might drop by 20% within a month. These sharp and swift changes in the commodity's value are a sign of volatility.

  Explanation: The rapid and substantial increases and decreases in coffee bean prices due to external factors like weather or technological advancements demonstrate volatility, as the commodity's value is subject to significant and quick changes.

• Example 3: A Popular Cryptocurrency

  A well-known cryptocurrency might see its value increase by 10% in a single day after a major financial institution announces it will begin accepting it for transactions. However, the very next day, a rumor about potential government regulation in a large economy could cause its value to fall by 8%. These dramatic and quick shifts in price are a hallmark of volatility in the cryptocurrency market.

  Explanation: The cryptocurrency's price is prone to dramatic and rapid shifts, often influenced by news, speculation, or regulatory developments, making its value highly volatile.