What does volatility in the stock market represent?

Volatility in the stock market is a measure of how much the price of a security, or the market as a whole, fluctuates over a certain period of time. It reflects the extent of price changes—both increases and decreases—and offers insights into the risk associated with investing in specific securities or markets. When volatility is high, it indicates that there are significant price swings, leading to increased uncertainty and risk for investors.

Option B accurately captures this concept as it emphasizes price fluctuations and links them to the level of risk in the market. Investors often view higher volatility as a signal of potential risks, as unpredictable price movements can result in substantial gains or losses.

On the other hand, the other options misinterpret the concept of volatility. Stability of a security's price would suggest minimal fluctuations, which is the opposite of volatility. An overall market downturn refers to a decline rather than the variability of prices, and the average return on investments does not pertain to price movements but rather to the performance metric of returns over time. Thus, the focus on price fluctuations and risk makes option B the correct representation of what volatility signifies in the stock market.