Autoregressive conditional heteroskedasticity

Summary

An autoregressive conditional heteroskedasticity (ARCH) model is a time series model with a changing variance. The conditional variance of today's shock depends on the squares of past shocks. It describes series whose volatility changes over time and comes in clusters, which is typical of financial returns. The model was introduced by Robert Engle, and its extension GARCH also lets past conditional variances enter the equation. It is a basic example of heteroscedasticity in time.