Generalized AutoRegressive Conditional Heteroskedasticity (GARCH)

AAA

DEFINITION of 'Generalized AutoRegressive Conditional Heteroskedasticity (GARCH)'

A statistical model used by financial institutions to estimate the volatility of stock returns. This information is used by banks to help determine what stocks will potentially provide higher returns, as well as to forecast the returns of current investments to help in the budgeting process.

INVESTOPEDIA EXPLAINS 'Generalized AutoRegressive Conditional Heteroskedasticity (GARCH)'

There are many variations of GARCH, including NGARCH to include correlation, and IGARCH which restricts the volatility parameter. Each model can be used to accomodate the specific qualities of the stock, industry or economic state.

RELATED TERMS
  1. Euler's Constant

    The limit of the sum of 1 + 1/2 + 1/3 + 1/4 ... + 1/n, minus ...
  2. Autoregressive Conditional Heteroskedasticity ...

    An econometric term used for observed time series. ARCH models ...
  3. Stochastic Volatility - SV

    A statistical method in mathematical finance in which volatility ...
  4. Robert F. Engle III

    An American economist who won the 2003 Nobel Memorial Prize in ...
  5. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
  6. Return

    The gain or loss of a security in a particular period. The return ...
Related Articles
  1. Does Your Investment Manager Measure ...
    Personal Finance

    Does Your Investment Manager Measure ...

  2. Insure Your Future With A Career As ...
    Home & Auto

    Insure Your Future With A Career As ...

  3. Economic Indicators That Do-It-Yourself ...
    Investing Basics

    Economic Indicators That Do-It-Yourself ...

  4. Does High GDP Mean Economic Prosperity?
    Economics

    Does High GDP Mean Economic Prosperity?

Hot Definitions
  1. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  2. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  5. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  6. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
Trading Center