Seasonal Mackey-Glass-GARCH process and short-term dynamics
AbstractThe aim of this article is the study of complex structures which are behind the short-term predictability of stock returns series. In this regard, we employ a seasonal version of the Mackey-Glass-GARCH(p,q) model, initially proposed by Kyrtsou and Terraza (2003) and generalized by Kyrtsou (2005, 2006). It has either negligible or significant autocorrelations in the conditional mean, and a rich structure in the conditional variance. To reveal short or long memory components and non-linear structures in the French Stock Exchange (CAC40) returns series, we apply the test of Geweke and Porter-Hudak (1983), the Brock et al. (1996) and Dechert (1995) tests, the correlation-dimension method of Grassberger and Procaccia (1983), the Lyapunov exponents method of Gencay and Dechert (1992), and the Recurrence Quantification Analysis introduced by Webber and Zbilut (1994). As a confirmation procedure of the dynamics generating future movements in CAC40, we forecast the return series using a seasonal Mackey-Glass-GARCH(1,1) model. The interest of the forecasting exercise is found in the inclusion of high-dimensional non-linearities in the mean equation of returns.
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Bibliographic InfoPaper provided by Department of Economics, University of Macedonia in its series Discussion Paper Series with number 2008_09.
Date of creation: Sep 2008
Date of revision: Sep 2008
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Noisy chaos; short-term dynamics; correlation dimension; Lyapunov exponents; recurrence quantifications; forecasting.;
Other versions of this item:
- Catherine Kyrtsou & Michel Terraza, 2010. "Seasonal Mackey–Glass–GARCH process and short-term dynamics," Empirical Economics, Springer, vol. 38(2), pages 325-345, April.
- C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-29 (All new papers)
- NEP-ECM-2008-09-29 (Econometrics)
- NEP-ETS-2008-09-29 (Econometric Time Series)
- NEP-FOR-2008-09-29 (Forecasting)
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