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Professor Engle's Contribution

January 27, 2004

From Toby Baxendale:

As a businessman with a degree in economics, and trying in my spare time to keep up with contemporary developments, I read in my LSE Alumni magazine, that the 2003 Nobel Prize winner, Professor Engle from NYU Stern School of Business, a fellow old Alumni recently spoke at the School. The blurb on Professor Engle says the following:

"Professor Engle was cited for his methods of analyzing economic time series with time-varying volatility, a discovery which was a major breakthrough. He found that the concept of autoregressive conditional hetroskedasticity (ARCH) accurately captures the properties of many time series, and then developed methods for statistical modeling of time-varying volatility."

Well, I can hardly pronounce "autoregressive conditional hetroskedasticity," can anyone tell me what it is? What value does the understanding of it have for humanity? Any hints or explanations would be gratefully received.

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