What effect does heightened risk perception have on investors during volatile markets?

Heightened risk perception during volatile markets leads investors to adjust their portfolio strategies accordingly. In times of uncertainty and increased risk, investors become more attuned to market signals and potential threats to their investments. This can cause them to reassess their current holdings, diversifying their assets or reallocating investments to more stable options. By doing so, they aim to mitigate losses and protect their capital, reflecting a proactive approach in response to the perceived risk. The ability to adapt strategies in light of changing market conditions is essential for managing risk effectively, allowing investors to navigate through volatility with greater resilience.