Auburn finance professor speaks on recent volatility of Stock Market

Auburn University finance professor John Jahera answers the below questions on the recent volatility of the Stock Market.

Jahera serves as the Bobby Lowder Professor of Finance in Auburn’s Harbert College of Business. He is the author of more than 80 articles in a variety of academic and professional journals including the Journal of Financial Research, the Journal of Law, Economics & Organization, Research in Finance, the Journal of Real Estate Finance & Economics and the Journal of Banking & Finance. The primary focus of his research has been in the area of banking, corporate finance and corporate governance. He serves as co-editor of the Journal of Financial Economic Policy and is on the editorial board of Corporate Finance Review, Review of Pacific Basin Financial Markets & Policies and International Journal of Business & Finance Research.

Is the recent volatility of the market something we should expect to see for the foreseeable future?

Market volatility tends to increase when markets are falling so given the declines in the last week, one might expect more volatility. Of course, it depends on what happens to the markets. Volatility can be impacted by many factors.

What is the key factor at play in upending some of the market’s previous, record-setting gains?

In terms of factors, it is hard to be precise but many analysts might argue that volatility is affected by changing expectations on the part of investors. That is, as investors become a bit more fearful of the market, more volatility can ensue. We still have to remember that the market has been setting record high levels throughout almost the last two years so it is not unexpected that we would see some adjustment at some point….markets go up and then markets go down. That’s part of the cycle.

What other factors are out there that could cause further upset to the market?

Other factors could include global issues from outside the US but that might impact our economy. There may also be some concerns with rising inflation. The recent increase in inflation has been very modest however and overall inflation remains quite low.

How should people respond to the ups and downs of late in the financial market?

In terms of individual investors, any reaction you may have will depend on your time horizon. For those who are older perhaps a move to “safe” investments would be warranted. For those with a longer time horizon, one could just continue to hold and ride out the downturn so to speak. Just like when the market fell nearly 50% during the financial crisis, it will come back at some point in time.