The Variance of Sample Autocorrelations: Does Barlett's Formula Work With ARCH Data?
We review the notion of linearity of time series, and show that ARCH or stochastic volatility (SV) processes are not only non-linear: they are not even weakly linear, i.e., they do not even possess a martingale representation. Consequently, the use of Bartlettâ€™s formula is unwarranted in the context of data typically modelled as ARCH or SV processes such as financial returns. More surprisingly, we show that even the squares of an ARCH or SV process are not weakly linear. Finally, we present an alternative to Bartlettâ€™s formula that is applicable (and consistent) in the context of financial returns data.
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- Carrasco, Marine & Chen, Xiaohong, 2002. "Mixing And Moment Properties Of Various Garch And Stochastic Volatility Models," Econometric Theory, Cambridge University Press, vol. 18(01), pages 17-39, February.
- Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
- Giraitis, Liudas & Kokoszka, Piotr & Leipus, Remigijus, 2000. "Stationary Arch Models: Dependence Structure And Central Limit Theorem," Econometric Theory, Cambridge University Press, vol. 16(01), pages 3-22, February.
- Bollerslev, Tim, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
Journal of Econometrics,
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- Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
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