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Models of Volatility

In: Time Series Econometrics

Author

Listed:
  • Klaus Neusser

Abstract

The prices of financial market securities are often shaken by large and time-varying shocks. The amplitudes of these price movements are not constant. There are periods of high volatility and periods of low volatility. Within these periods volatility seems to be positively autocorrelated: high amplitudes are likely to be followed by high amplitudes and low amplitudes by low amplitudes. This observation which is particularly relevant for high frequency data such as, for example, daily stock market returns implies that the conditional variance of the one-period forecast error is no longer constant (homoskedastic), but time-varying (heteroskedastic).

Suggested Citation

  • Klaus Neusser, 2016. "Models of Volatility," Springer Texts in Business and Economics, in: Time Series Econometrics, chapter 8, pages 167-193, Springer.
    • Handle: RePEc:spr:sptchp:978-3-319-32862-1_8
    DOI: 10.1007/978-3-319-32862-1_8
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