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The relationship between volatility in the stock market and investor psychology

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Several academics have since examined the relationship between investor sentiment and stock price volatility and discovered that it can greatly increase stock volatility. Investor behavior tends to exhibit patterns during times of increased volatility, including flight to safety, herding behavior, overreaction, and loss aversion. The effects of investor behavior on market volatility are demonstrated by historical instances such as the Great Depression, the Dotcom Bubble, and the Global Financial Crisis.

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In the securities market, volatility is often associated with large changes in one of the investment instruments, whether up or down, generally more than 1%. Of course it will have a big impact on investor psychology, novice investors often panic when prices fall and sell all their stocks.
 
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