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GARCH processes and the phenomenon of misleading and unambiguous signals
Author(s) -
Sousa Beatriz,
Cabral Morais Manuel,
Okhrin Yarema,
Schmid Wolfgang
Publication year - 2018
Publication title -
applied stochastic models in business and industry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.413
H-Index - 40
eISSN - 1526-4025
pISSN - 1524-1904
DOI - 10.1002/asmb.2334
Subject(s) - phenomenon , autoregressive conditional heteroskedasticity , econometrics , statistical physics , computer science , economics , volatility (finance) , epistemology , physics , philosophy
In finance, it is quite usual to assume that a process behaves according to a previously specified target generalized autoregressive conditionally heteroscedastic process. The impact of rumors or other events on this process can be frequently described by an outlier responsible for a short‐lived shift in the process mean or by a sustained change in the process variance. This calls for the use of joint schemes for the process mean and variance. Since changes in the mean and in the variance require different actions from the traders/brokers, this paper provides an account on the probabilities of misleading and unambiguous signals of those joint schemes, thus adding insights on their out‐of‐control performance.