Question

If we constructed a chart like a figure 2.2 below for a typical S&P 500 stocks, do you think it would show more or less volatility? Explain.

FIGURE 2.2 S&P 500 Index, Total Returns: Dividend Yield + Capital Gain or Loss, 1968-2016 Returns (96) 50.00 40.00 30.00 20.00 10.00 0.00 الأسماء الله بلال - 10.00 -20.00 -30.00 - - 40.00 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018 Years

Answer 1

The chart shows that the stock is highly volatile if you see just the bars. The bars are changing all of sudden from positive to negatives. However, if we observe the X-axis, the return volatility is displayed on a yearly basis. From either angle, the stock shows high volatility. Bars are changing from negative to positive and within positive or negative also, the spike is too large for a stock. The stock is frequently receiving shocks. It is atypical of a blue-chip stock. We usually see some volatility but the bars are pretty same in size for most of the stocks. But, this particular stock shows high volatility and the same is observed in the fights of the bars.