Klaassen, F.J.G.M. - Tilburg University, Center for Economic Research - 1998
Many researchers use GARCH models to generate volatility forecasts. We show, however, that such forecasts are too … variable. To correct for this, we extend the GARCH model by distinguishing two regimes with different volatility levels. GARCH … forecasts than single-regime GARCH and that the allowance for GARCH terms besides ARCH terms can be crucial for the forecast …