VOLATILITY FORECASTING FOR MUTUAL FUND PORTFOLIOS
Samuel Kyle Jones
Stephen F. Austin State University, USA
The return volatility of portfolios of mutual funds having similar investment objectives is analyzed. Consistent with prior research on individual mutual funds, the presence of significant GARCH effects are found in these portfolios. Further, incorporating macroeconomic variables into the model is significant in explaining some of the conditional volatility of these fund portfolios. However, in out-of-sample forecasts the addition of macroeconomic factors does not provide better volatility forecasts than a simple, single factor GARCH model, though both are superior to a na´ve random walk model, indicating that there is benefit to forecasting volatility for aggregate portfolios of mutual funds.
Key Words:forecasting, volatility, GARCH models, mutual funds