Duxbury, D and Summers, BA orcid.org/0000-0002-9294-0088 (2018) On Perceptions of Financial Volatility in Price Sequences. European Journal of Finance, 24 (7-8). pp. 521-543. ISSN 1351-847X
Abstract
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.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2017 Informa UK Limited, trading as Taylor & Francis Group. This is an author produced version of a paper published in European Journal of Finance. Uploaded in accordance with the publisher's self-archiving policy. |
Keywords: | Volatility; risk; price sequence; mean absolute price change; standard deviation |
Dates: |
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Institution: | The University of Leeds |
Academic Units: | The University of Leeds > Faculty of Business (Leeds) > Management Division (LUBS) (Leeds) > Management Division Decision Research (LUBS) |
Depositing User: | Symplectic Publications |
Date Deposited: | 18 Jan 2017 11:49 |
Last Modified: | 06 Sep 2018 00:38 |
Published Version: | https://doi.org/10.1080/1351847X.2017.1282882 |
Status: | Published |
Publisher: | Taylor & Francis |
Identification Number: | 10.1080/1351847X.2017.1282882 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:110733 |