Explain econometric models

Question

Explain econometric models.

Answer 1

Econometric models: These models use different forms of time series analysis to estimate future and current expected actual volatility. They are classically based on several regression of volatility against past returns and they may include autoregressive or moving-average components. In such category are the GARCH types of models. But one models the square of volatility and the variance, and sometimes one uses high-low-open-close data and not only closing prices, as well as sometimes one models the logarithm of volatility.
The concluding seems to be quite promising since there is evidence as actual volatility is lognormally distributed. Another work in this area decomposes the volatility of a stock in components, industry volatility, market volatility and firm-specific volatility. It is similar to CAPM for returns.