Stern School of Business >
Finance Working Papers >
Please use this identifier to cite or link to this item:
|Title: ||How Relevant is Volatility Forecasting for Financial Risk Management?|
|Authors: ||Christoffersen, Peter F.|
Diebold, Francis X.
|Issue Date: ||17-Oct-1998 |
|Series/Report no.: ||FIN-98-080|
|Abstract: ||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. Existing assessments
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 model. To address this problem, we
develop a model-free procedure for measuring 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 very short
horizons relevant for, say, trading desk management, may not be
important for risk management more generally.|
|Appears in Collections:||Finance Working Papers|
All items in Faculty Digital Archive are protected by copyright, with all rights reserved.