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

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

2008-03-31

arxiv.org/abs/0803.4480v1

Economy

Quantitative Finance

Statistical Finance

Scientific paper

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.

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