GARCH (1,1) Volatility Model Falls Short in Forecasting Financial Markets
The study compared different models for predicting financial volatility using data on the peso-dollar exchange rate. They found that accurately predicting the distribution of asset returns is crucial, not just focusing on volatility. The researchers tested 68 models and discovered that GARCH (1,1) alone is not sufficient for accurate forecasts. They also introduced the Parkinson Range as an alternative measure to Realized Volatility.