How do stock prices typically behave compared to bond prices?

Stock prices tend to be more volatile due to several inherent characteristics of equity markets. This volatility arises from various factors, such as company performance, market conditions, investor sentiment, and economic indicators. Stocks represent ownership in a company, and their values can fluctuate rapidly based on earnings reports, news about the company or industry, and broader market trends.

In contrast, bond prices are generally more stable because bonds are fixed-income instruments, providing regular interest payments and returning principal upon maturity. Bond pricing is more influenced by interest rates and inflation expectations, which tend to change less frequently than the various factors impacting stock prices.

Understanding this difference in volatility is crucial for investors and HR professionals managing compensation strategies tied to performance metrics that may include stock options or equity awards. Each financial instrument behaves differently, and recognizing these behaviors can help in making informed decisions regarding investment and compensation plans.