ARCH and GARCH models vs. martingale volatility of finance market returns

Joseph L. McCauley

International Review of Financial Analysis, 2009, vol. 18, issue 4, 151-153

Abstract: ARCH 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.

Keywords: Nonstationary; differences/increments; ARCH; GARCH; Martingales; Efficient; market; hypothesis; Volatility (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057-5219(09)00036-2
Full text for ScienceDirect subscribers only

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:eee:finana:v:18:y:2009:i:4:p:151-153

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().