Volatility
Market Microstructure glossary · Spread Economics & Liquidity Measurement
Definition
The standard deviation of returns, measuring the magnitude of price changes over time.
Volatility in plain English
Volatility is just a measure of how jumpy a price is — how wildly it swings up and down over time, rather than which direction it's heading. A calm, steady stock has low volatility; one that lurches around has high volatility, which usually means more risk. Formally it's the standard deviation of returns, meaning it captures the typical size of the ups and downs around the average. Picture two hiking trails to the same summit: one is a smooth ramp, the other is a rollercoaster of climbs and drops — volatility describes how bumpy the ride is.
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