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On perceptions of financial volatility in price sequences

Lookup NU author(s): Professor Darren DuxburyORCiD



This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY-NC-ND).


Stock prices in financial markets rise and fall, sometimes dramatically, thus asset returns exhibit volatility. In finance theory, volatility is synonymous with risk and as such represents the dispersion of asset returns about their central tendency (i.e. mean), measured by the standard deviation of returns. When individuals make investment decisions, influenced by perceptions of risk and volatility, they commonly do so by examining graphs of historic price sequences rather than returns. It is unclear, therefore, whether standard deviation of return is foremost in their mind when making such decisions. We conduct two experiments to examine the factors that may influence perceptions of financial volatility, including standard deviation along with a number of price-based factors. Also of interest is the influence of price sequence regularity on perceived volatility. While standard deviation may have a role to play in perception of volatility, we find evidence that other price-based factors play a far greater role. Furthermore, we report evidence to support the view that the extent to which prices appear irregular is a separate aspect of volatility, distinct from the extent to which prices deviate from central tendency. Also, while partially correlated, individuals do not perceive risk and volatility as synonymous, though they are more closely related in the presence of price sequence irregularity.

Publication metadata

Author(s): Duxbury D, Summers B

Publication type: Article

Publication status: Published

Journal: The European Journal of Finance

Year: 2018

Volume: 24

Issue: 7-8

Pages: 521-543

Online publication date: 06/03/2017

Acceptance date: 23/12/2016

Date deposited: 10/01/2017

ISSN (print): 1351-847X

ISSN (electronic): 1466-4364

Publisher: Routledge


DOI: 10.1080/1351847X.2017.1282882


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