ARCH and GARCH Models vs. Martingale Volatility of Finance Market Returns

Joseph L. McCauley

Papers from arXiv.org

Abstract: ARCH and GARCH models assume either i.i.d. or (what economists lable as) white noise as is usual in regression analysis while 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 finance data and the efficient market hypothesis as well.

Date: 2008-03
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