TY  - JOUR
AU  - Andersen,Torben G.
AU  - Bollerslev,Tim
TI  - Answering the Critics: Yes, ARCH Models Do Provide Good Volatility Forecasts
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6023
PY  - 1997
Y2  - April 1997
UR  - http://www.nber.org/papers/w6023
L1  - http://www.nber.org/papers/w6023.pdf
N1  - Author contact info:
Torben G. Andersen
Kellogg School of Management
Northwestern University
2001 Sheridan Road
Evanston, IL  60208
Tel: 847/467-1285
Fax: 847/491-5719
E-Mail: t-andersen@kellogg.northwestern.edu

Tim Bollerslev
Department of Economics
Duke University
Box 90097
Durham, NC 27708-0097
Tel: 919/660-1846
Fax: 919/684-8974
E-Mail: boller@econ.duke.edu
AB  - Volatility permeates modern financial theories and decision making processes.  As such, accurate measures and good forecasts of future volatility are critical for the implementation and evaluation of asset pricing theories.  In response to this, a voluminous literature has emerged for modeling the temporal dependencies in financial market volatility at the daily and lower frequencies using ARCH and stochastic volatility type models.  Most of these studies find highly significant in-sample parameter estimates and pronounced intertemporal volatility persistence.  Meanwhile, when judged by standard forecast evaluation criteria, based on the squared or absolute returns over daily or longer forecast horizons, ARCH models provide seemingly poor volatility forecasts.  The present paper demonstrates that ARCH models, contrary to the above contention, produce strikingly accurate interdaily forecasts for the latent volatility factor that is relevant for most financial applications.
ER  -