What does "market volatility" indicate?

Market volatility refers specifically to the degree of variation in trading prices of financial instruments over time. It is a statistical measure that often highlights the extent and frequency of price fluctuations in the market. High volatility indicates that a security’s price can change dramatically in a short period, which can be due to various factors such as changes in market sentiment, economic indicators, or unexpected news.

Understanding market volatility is crucial for investors and financial advisors because it affects investment strategy, risk assessment, and potential returns. For example, in a highly volatile market, investors may seek to adopt different strategies compared to a stable market where price fluctuations are minimal. Thus, recognizing the characteristics and implications of market volatility is essential for making informed investment decisions.

The other options describe different economic phenomena or concepts that do not encompass the definition of market volatility. Stability in market prices, while conversely related to volatility, does not convey the notion of fluctuation. The likelihood of recession and the overall health of the economy involve broader economic indicators and conditions, rather than price variations of specific financial instruments.