TY  - JOUR
AU  - Christoffersen,Peter F.
AU  - Diebold,Francis X.
TI  - How Relevant is Volatility Forecasting for Financial Risk Management?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6844
PY  - 1998
Y2  - December 1998
UR  - http://www.nber.org/papers/w6844
L1  - http://www.nber.org/papers/w6844.pdf
N1  - Author contact info:
Peter Christoffersen
Peter Christoffersen
Professor of Finance
Rotman School of Management
University of Toronto
105 St. George Street 447
Toronto, ON, M5S 3E6, Canada
Tel: 416-946-5511
E-Mail: peter.christoffersen@rotman.utoronto.ca

Francis X. Diebold
Department of Economics
University of Pennsylvania
3718 Locust Walk
Philadelphia, PA  19104-6297
Tel: 215/898-1507
Fax: 212/573-4217
E-Mail: fdiebold@sas.upenn.edu
AB  - It depends.  If volatility fluctuates in a forecastable way, then volatility forecasts are useful for risk management; hence the interest in volatility forecastability in the risk management literature.  Volatility forecastability, however, varies with horizon, and different horizons are relevant in different applications.  Moreover, existing assessments of volatility forecastability are plagued by the fact that they are joint assessments of volatility forecastability and an assumed model, and the results vary not only with the horizon, but also with the assumed model.  To address this problem, we develop a model-free procedure for assessing volatility forecastability across horizons.  Perhaps surprisingly, we find that volatility forecastability decays quickly with horizon.  Volatility forecastability, although clearly of relevance for risk management at the short horizons relevant for, say, trading desk management, may not be important for risk management more generally.
ER  -