How relevant is volatility forecasting for financial risk management?

It depends. If volatility fluctuates in a forecastable way, volatility fore casts are useful for risk management (hence the interest in volatility fore castability in the risk management literature). Volatility forecastability, however, varies with horizon, and different horizons are relevant in diffe rent applications. Moreover, existing assessments of volatility forecastabi lity are plagued by the fact that they are joint assessments of volatility forecastability and an assumed model, and the results can vary not only wit h the horizon but also with the assumed model. To address this problem, we develop a model-free procedure for assessing volatility forecastability acr oss horizons. Perhaps surprisingly, we find that volatility forecastability decays quickly with horizon. Volatility forecastability-although clearly o f relevance for risk management at the short horizons relevant for, say, tr ading desk management-may be much less important at longer horizons.