Volatility is how the return on an asset fluctuates over time. Using the share market as an example, volatility is often measured by changes in the price of a share. When the market is volatile, prices can rise or fall a lot in a short time.
These movements mean the value of your investments can change quickly. They might rise in value one day and fall the next.
Volatility can make us feel nervous, but short-term ups and downs happen often in share markets. Over long periods, markets have moved through many cycles of rises and falls.
Check out this chart from the Australian Securities Exchange (ASX) showing an example of Australian share price movements between 1995 and 2025.
What causes share market volatility?
As the ASX chart linked in the smart tip box shows, a lot of factors can move share prices quickly.
Share markets respond to new information such as economic data, company results and global events. Investors react to this information by buying and selling shares, which moves prices.
Economic data often affects the market. Changes in interest rates, inflation or economic growth can shape how investors view the future performance of companies.
Global events also influence markets. Political decisions, trade changes or international conflicts can create uncertainty for investors.
Investor behaviour can also drive volatility. When many investors feel nervous, they may sell shares at the same time, which can push prices down. When investors feel more confident, they may buy more shares and push prices up.
Because new information appears all the time, the price of listed shares can change frequently.
What to consider when markets are volatile
Large changes in share markets market movements can make us feel nervous, but quick reactions to market swings can sometimes lead to poorer long term decisions. So:
- Focus on your goals. Markets move in the short term, but many people invest for the long term. Make sure you match your investments to your goals, timeframe and risk level, and review your investment plan regularly.
- Avoid emotional decisions. Selling investments during a fall can ‘lock in’ losses. And making emotional decisions might also make you a target for scams.
- Stay diversified. Spread your money across different investments such as shares, property, bonds and cash to help reduce risk.
- Seek advice if you need it. We can help you understand your options.
A clear plan can help you stay focused when markets move up and down.
Be on red alert for phone calls, click bait advertising and promises of unrealistic returns to encourage you to put your super into risky investments. High-pressure sales tactics may be putting your super savings at risk. Stop, think carefully, and check the claims first.
Read the investor alert and these tips on how to protect your money.
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/how-to-invest/what-is-share-market-volatility
Important note: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. Past performance is not a reliable guide to future returns.
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