How is volatility usually perceived by investors?

Volatility is primarily perceived by investors as an indicator of risk and uncertainty. When the price of an asset fluctuates significantly over a short period, it creates a sense of unpredictability regarding its future price movements. This unpredictability can lead to apprehension or hesitation among investors, as higher volatility can mean that an investment carries a greater chance of experiencing substantial gains or losses. Understanding volatility is crucial for risk management, as investors often scrutinize it to gauge the potential risk involved in their portfolios and adjust their investment strategies accordingly.

The perception of volatility as a risk factor is central to various investment decisions, including asset allocation and the application of trading strategies. Investors may seek to mitigate risk by diversifying their portfolios or using derivatives to hedge against potential losses in highly volatile assets.