New formula predicts future financial returns and variances with accuracy.
The article explores how to predict future returns and variances in financial markets using GARCH models. By analyzing the dynamic properties and higher moments of return distributions, researchers developed new formulas for forecasting. These formulas consider volatility clustering and non-normal distributions, common in financial assets. The study shows that GARCH models can provide more than just point variance forecasts, offering insights into forward and cumulative returns and variances.