A lesson in market volatility

Charting volatility

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Kai Ryssdal: Here's something to bear in mind as you consider the 936 point ride the Dow took us on today. If you're worried about market volatility, those triple digit swings we've been seeing for what seems like forever now then you need to know that up can be as bad as down. And a 936 point gain can be as troubling, and as irrational, as a 777 point drop. Is there a reason stocks that dropped by 40 percent last week are up 20 percent today? Is today all of a sudden a better time to invest in everything from banks to fast food? Marketplace's Jeremy Hobson reports on the science of volatility.


Jeremy Hobson:
To help illustrate volatility, I've asked my father Ian Hobson, who is a pianist, to play what the market sounds like when things are relatively calm.
Now, last week was anything but calm. United Health Group, for instance, had a terrible time. Dad?

Ian Hobson: Jeremy, I'm going to play United Health October Surprise, First Movement.

That's a 30 percent loss in the course of the week. Then there was today, up 30 percent. Now, that's volatility. Lawrence White is an economist at NYU's Stern School of business. He says when fear kicks in investors may ignore a company's fundamentals and take on a herd mentality.

Lawrence White: A few people say, well gosh, those people are selling, they must know something. And that's when you get this kind of snowballing high volatility kind of events.

It works both ways of course. Investors often chase a stock up the market if it appears hot. But White says this kind of volatility is reminiscent of the 1929 and '87 crashes.

White: What is exceptional I think is the length of time that we've experienced high volatility this time around.

And it continued today. Just wait till you hear the numbers.

In New York, I'm Jeremy Hobson for Marketplace.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.

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