Volatility is critical to risk measurement. Generally, volatility refers to standard deviation, which is a dispersion measure. Greater dispersion implies greater risk, which implies higher odds of price erosion or portfolio loss - this is key information for any investor. Volatility is also a key input in parametric value at risk (VAR), where portfolio exposure is a function of volatility. This sensitivity rose during the latter period in the sample, suggesting greater integration of Asian financial markets with global markets.
Long-run forex volatility declined as Asian economies settled down with generally stronger fundamentals in the post-crisis period to more flexible regimes along with a generally lower level of mature market meashre.