WHY DOES THE STANDARD GARCH(1, 1) MODEL WORK WELL?

G. R. Jafari (), A. Bahraminasab () and P. Norouzzadeh ()
Additional contact information
G. R. Jafari: Department of Physics, Shahid Beheshti University, Evin, Tehran 19839, Iran;
A. Bahraminasab: Department of Physics, Lancaster University, Lancaster LA1 4YB, United Kingdom;
P. Norouzzadeh: Department of Physics, University of Antwerp, Groenenborgerlaan 171, B-2020 Antwerpen, Belgium

International Journal of Modern Physics C (IJMPC), 2007, vol. 18, issue 07, 1223-1230

Abstract: The AutoRegressive Conditional Heteroskedasticity (ARCH) and its generalized version (GARCH) family of models have grown to encompass a wide range of specifications, each of them is designed to enhance the ability of the model to capture the characteristics of stochastic data, such as financial time series. The existing literature provides little guidance on how to select optimal parameters, which are critical in efficiency of the model, among the infinite range of available parameters. We introduce a new criterion to find suitable parameters in GARCH models by using Markov length, which is the minimum time interval over which the data can be considered as constituting a Markov process. This criterion is applied to various time series and its results support the known idea that GARCH(1, 1) model works well.

Keywords: Time series analysis; GARCH processes; Markov process; 05.45.Tp; 89.90.n+; 02.50.Ga (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0129183107011261
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:ijmpcx:v:18:y:2007:i:07:n:s0129183107011261

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0129183107011261

Access Statistics for this article

International Journal of Modern Physics C (IJMPC) is currently edited by H. J. Herrmann

More articles in International Journal of Modern Physics C (IJMPC) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().