PT  - JOURNAL ARTICLE
AU  - Kevin Khang
TI  - Toward Regime-Aware Risk Forecasts
AID  - 10.3905/jpm.2022.48.5.049
DP  - 2022 Mar 31
TA  - The Journal of Portfolio Management
PG  - 49--70
VI  - 48
IP  - 5
4099  - https://pm-research.com/content/48/5/49.short
4100  - https://pm-research.com/content/48/5/49.full
AB  - Estimation lookback window is a key calibration parameter in industry-standard risk models. It determines how readily the model incorporates new data to form volatility forecasts. Most volatility environments can be characterized as either slow-moving or fast-moving, and no single calibration generates consistently reliable forecasts. A model’s strength in one environment is often the reason it is ill-suited for other environments. The potential impact of using a suboptimal model can be measured in real time with a cross-sectional dispersion of forecasts from different calibrations. This information can be used to inform timely, and disciplined, transitions between slow-moving and fast-moving models—the makings of regime-aware volatility forecasting.