ARCH model

The ARCH model, which stands for Autoregressive Conditional Heteroskedasticity, is a statistical method used to analyze and forecast financial time series data, like stock prices or economic indicators. It recognizes that the variability in data can change over time—often increasing during periods of market turmoil. By modeling these changing levels of volatility, the ARCH model helps researchers and investors understand risks and make better predictions about future market behavior. Essentially, it captures the tendency for financial markets to have spikes in volatility, allowing for more informed decision-making.