Global financial market volatility- One of the important factors affecting the Global Economy

In the decade of 1980s and 1990s many countries have facilitated the domestic as well as cross-border trading in the financial instruments of the World’s economy. In this period a lot of advances in the technology occurred which helped in the development of the financial techniques and surrounding instruments. This advancement has significantly increased the amalgamation of the financial markets. There have been a lot of changes since then which undoubtedly, has improved and enhanced the global allocation of the financial capital and assets. However, since 1980s, there has been a rise in the price of the Global Financial Market Volatility which has failed to decline in the more stable environment of inflation.

Results of volatility in the Global Market

Some of the factors resulting in this change can be considered as internationalization of portfolio management, deregulation, the use of new macroeconomic policies and hedging instruments. This possible rise in the financial market volatility might have macroeconomic and microeconomic consequences.  This has affected the global the global allocation of the financial resources along with the stability of the global financial markets.

Understanding the term Volatility

While talking about volatility we must understand the phenomenon of global volatility in the financial markets. It’s very important to understand the term volatility and also the potential outcomes in the rise of the Global Financial Market Volatility. Here, we are going to consider the two main types of volatility. They are

  • Implied volatility and
  • Historical volatility.

These two volatilities are highly related to each other, with only difference is that implied volatility is forward looking whereas historical volatility is backward looking. Hence the first kind is mostly preferred by many bankers and leaders.

Financial Market volatility refers to the power or intensity of the fluctuations or instability affecting the global financial market. There has been a vast difference in the definition of volatility from a century ago and today. A century ago volatility was defined as something which was related to the instability of the price, or the “coefficient of nervousness”. But today when we are looking forward for the final price then we must consider the historical volatility to deduce or derive the volatility figure from the option prices.

Interpretation of the volatility

Financial Market Volatility is often understood as a measure of risk. This Financial Volatility is often considered as one of the most crucial risk indicators and factors which are available to the market participants and the observers. It is also considered as a tradable market instrument within itself. We can hence estimate and measure financial volatility, which affects the value of the volatility. We can even buy, or sell, the volatility, which in turn also affects its value. Hence the financial volatility trading can be carried out by the means of dynamic trading strategies which involves a whole lot of options and increasingly more complicated option structures. Such trading strategies nowadays are well mastered by the market professionals. Hence in the recent trends volatility that has been materialized in the core global financial markets.

You might also like More from author

Leave A Reply

Your email address will not be published.

Show Buttons
Hide Buttons