ARCH and GARCH models vs. martingale volatility of finance market returns
AbstractARCH and GARCH models assume either i.i.d. or 'white noise' as is usual in regression analysis, while also assuming memory in a conditional mean square fluctuation with stationary increments. We will show that ARCH/GARCH is inconsistent with uncorrelated increments, violating the i.i.d. and 'white' assumptions, and violating finance data and the efficient market hypothesis as well.
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Bibliographic InfoArticle provided by Elsevier in its journal International Review of Financial Analysis.
Volume (Year): 18 (2009)
Issue (Month): 4 (September)
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Web page: http://www.elsevier.com/locate/inca/620166
Nonstationary differences/increments ARCH GARCH Martingales Efficient market hypothesis Volatility;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- McCauley, Joseph L. & Bassler, Kevin E. & Gunaratne, Gemunu H., 2008. "Martingales, detrending data, and the efficient market hypothesis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(1), pages 202-216.
- Bassler, Kevin E. & McCauley, Joseph L. & Gunaratne, Gemunu H., 2006. "Nonstationary increments, scaling distributions, and variable diffusion processes in financial markets," MPRA Paper 2126, University Library of Munich, Germany.
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