Autoregressive Conditional Heteroskedasticity - ARCH

An econometric term used for observed time series. ARCH models are used to model financial time series with time-varying volatility, such as stock prices. The ARCH concept was developed by economist Robert F. Engle, for which he won the 2003 Nobel Memorial Prize in Economic Sciences.

ARCH models assume that the variance of the current error term is related to the size of the previous periods' error terms, giving rise to volatility clustering. This phenomenon is widely observable in financial markets, where periods of low volatility are followed by periods of high volatility and vice versa. For example, volatility for the S&P 500 was unusually low for an extended period during the bull market from 2003 to 2007, before spiking to record levels during the market correction of 2008. ARCH models have become mainstays of arbitrage pricing and portfolio theory.


Investment dictionary. . 2012.

Look at other dictionaries:

  • Generalized AutoRegressive Conditional Heteroskedasticity (GARCH) Process — An econometric term developed in 1982 by Robert F. Engle, an economist and 2003 winner of the Nobel Memorial Prize for Economics to describe an approach to estimate volatility in financial markets. There are several forms of GARCH modeling. The… …   Investment dictionary

  • Generalized AutoRegressive Conditional Heteroskedasticity (GARCH) — A statistical model used by financial institutions to estimate the volatility of stock returns. This information is used by banks to help determine what stocks will potentially provide higher returns, as well as to forecast the returns of current …   Investment dictionary

  • List of statistics topics — Please add any Wikipedia articles related to statistics that are not already on this list.The Related changes link in the margin of this page (below search) leads to a list of the most recent changes to the articles listed below. To see the most… …   Wikipedia

  • Outline of regression analysis — In statistics, regression analysis includes any technique for learning about the relationship between one or more dependent variables Y and one or more independent variables X. The following outline is an overview and guide to the variety of… …   Wikipedia

  • List of mathematics articles (A) — NOTOC A A Beautiful Mind A Beautiful Mind (book) A Beautiful Mind (film) A Brief History of Time (film) A Course of Pure Mathematics A curious identity involving binomial coefficients A derivation of the discrete Fourier transform A equivalence A …   Wikipedia

  • Exponential distribution — Not to be confused with the exponential families of probability distributions. Exponential Probability density function Cumulative distribution function para …   Wikipedia

  • Trend estimation — is a statistical technique to aid interpretation of data. When a series of measurements of a process are treated as a time series, trend estimation can be used to make and justify statements about tendencies in the data. By using trend estimation …   Wikipedia

  • Cauchy distribution — Not to be confused with Lorenz curve. Cauchy–Lorentz Probability density function The purple curve is the standard Cauchy distribution Cumulative distribution function …   Wikipedia

  • Normal distribution — This article is about the univariate normal distribution. For normally distributed vectors, see Multivariate normal distribution. Probability density function The red line is the standard normal distribution Cumulative distribution function …   Wikipedia

  • Differential entropy — (also referred to as continuous entropy) is a concept in information theory that extends the idea of (Shannon) entropy, a measure of average surprisal of a random variable, to continuous probability distributions. Contents 1 Definition 2… …   Wikipedia

  • Uniform distribution (continuous) — Uniform Probability density function Using maximum convention Cumulative distribution function …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.