Answering the skeptics: Yes, standard volatility models do provide accurate forecasts

Torben G. Andersen, Tim Bollerslev

Research output: Contribution to journalArticlepeer-review

1498 Scopus citations

Abstract

A voluminous literature has emerged for modeling the temporal dependencies in financial market volatility using ARCH and stochastic volatility models. While most of these studies have documented highly significant in-sample parameter estimates and pronounced intertemporal volatility persistence, traditional ex-post forecast evaluation criteria suggest that the models provide seemingly poor volatility forecasts. Contrary to this contention, we show that volatility models produce strikingly accurate interdaily forecasts for the latent volatility factor that would be of interest in most financial applications. New methods for improved ex-post interdaily volatility measurements based on high-frequency intradaily data are also discussed.

Original languageEnglish (US)
Pages (from-to)885-905
Number of pages21
JournalInternational Economic Review
Volume39
Issue number4
DOIs
StatePublished - Nov 1998

ASJC Scopus subject areas

  • Economics and Econometrics

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