Question

Why do publicly traded stocks tend to see more price volatility than publicly traded corporate bonds?

Answer 1

Publicly traded stocks tend to see more price volatility than publicly traded corporate bonds because of following reasons-

1. There is high level of volumes and trading in the equity markets for continuous price discovery than in bond markets as there are higher market participants.

2. There are high level of disclosure requirements in the equity markets so it tends to reflect into the price volatility.

3.There are large number of price sensitive information in the stock markets than that of in the bond markets and hence they are more volatile.

4. There is a high level of risks and uncertainties involved in the stock markets while bonds are relatively more secured than stocks so there is a high level of volatility in stocks due to higher uncertainty .

5. Equity markets have speculative segment in form of derivatives which helps in futures and options trading and increase volatility while Bond markets doesn't have any derivative market.