Investor sentiment drives market action
One of the most visible indicators of investor sentiment is daily market volatility. When indexes exhibit extreme moves as measured by +/- 1% price changes on any given day, it is likely that emotions (fear or greed) are driving investment decisions. Why? Because the fundamental value of a business does not change by 1, 3, or 5% in any given day, in this case the market is revaluing the enterprise not on fundamental value, but on emotion. As seen below, volatility by this measure increased dramatically at the end of 2008, as investor concerns over the future resulted in extreme price fluctuations.
In contrast, volatility declined throughout 2009, suggesting a more fundamental approach to pricing assets.
Investment products and services are offered through Investors Group Financial Services Inc. (in Québec, a Financial Services firm) and Investors Group Securities Inc. (in Québec, a firm in Financial Planning).
Investors Group Securities Inc. is a member of the Canadian Investor Protection Fund.
Written and published by Investors Group as a general source of information only. It is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax, legal or investment advice. Readers should seek advice on their specific circumstances from an Investors Group Consultant.
TM Trademark owned by IGM Financial Inc. and licensed to its subsidiary corporations.
“Investor sentiment drives market action” © Investors Group Inc. 2010
