This paper presents a GARCH type volatility model with a time-varying unconditional volatility which is a function of … macroeconomic variables can be easily incorporated into volatility forecasts for share index returns. It transpires that the model … proposed here can lead to significantly improved volatility forecasts compared to traditional GARCH type volatility models. …

A well developed literature exists in relation to modeling and forecasting asset return volatility. Much of this relate … to the development of time series models of volatility. This paper proposes an alternative method for forecasting … volatility that does not involve such a model. Under this approach a forecast is a weighted average of historical volatility. The …