Time-Series Techniques: Estimating Volatility

The author examines the different methods of volatility estimation widely used among market practitioners. These techniques range from the simple to the complex and incorporate varying degrees of backward- and forward-looking data. The author discusses the characteristics of asset class returns that make volatility inherently more predictive than returns themselves. He compares a variety of volatility estimation models, assessing their characteristics and predictive abilities across different asset classes and market environments. Finally, he assesses the application of volatility estimates as an asset allocation tool.