Seasonal Mackey-Glass-GARCH process and short-term dynamics

Catherine Kyrtsou and Michel Terraza ()
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Michel Terraza: Department of Economics, LAMETA, http://www.lameta.univ-montp1.fr/En/Accueil.htm

Discussion Paper Series from Department of Economics, University of Macedonia

Abstract: The 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.

Keywords: Noisy chaos; short-term dynamics; correlation dimension; Lyapunov exponents; recurrence quantifications; forecasting. (search for similar items in EconPapers)
JEL-codes: C49 C51 C52 C53 D84 G12 G14 (search for similar items in EconPapers)
Date: 2008-09, Revised 2008-09
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-for
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Journal Article: Seasonal Mackey–Glass–GARCH process and short-term dynamics (2010)
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