Volatility spikes are described as occurring in response to what type of events?

• A. Domestic earnings
• B. Geopolitical events
• C. Regulatory changes
• D. Seasonal effects

Answer: (B)

Volatility spikes come from sudden, high-uncertainty events that make future outcomes hard to price. Geopolitical events—such as conflicts, tensions between nations, elections with unclear policy outcomes, or sanctions—create abrupt shifts in risk assessment across markets. When investors don’t know how these events will impact economies, currencies, and supply chains, they rush to adjust positions, bid up options prices, and pull back from riskier assets. That rush translates into a rapid rise in both implied and realized volatility.

Other events like company earnings are important, but spikes tied to broader uncertainty are more characteristic of geopolitical developments, which can affect many sectors and markets at once. Regulatory changes and seasonal effects can move markets too, but their impact tends to be more gradual or predictable than the sharp, global uncertainty sparked by geopolitical events.