Awesome! Thanks. Is that the reason why I seem to have seen people ask about
adding an ARMA process and a GARCH process?
I'll surely look at that text.
On Thu, Oct 1, 2009 at 4:49 PM, John C Frain <frainj(a)gmail.com> wrote:
An ARIMA model is basically a model of the level of the process. A
GARCH model is a model of the volatility of the process. There can of
course be interactions between the volatility and the level (e.g.
Garch in mean process). A complete answer to your questions would
take an email equivalent to several chapters in a book. One uses the
log of a variable when one sees the shock to the process as being
multiplicative. I would think that the shock process in
multiplicative for most price processes.
Might I recommend a text such as Enders or similar as an introduction
to time series analysis.
2009/10/1 Saqib Ilyas <msaqib(a)gmail.com>:
> Hi all,
> I tried sending this email last night, but I don't think it has gotten
> through. Perhaps my membership hadn't been processed as yet.
> I am using the 2006 till 2009 data for the New England pool of day-ahead
> weighted average prices. I am not very fluent with econometrics, but I
> in some papers that GARCH has been used successfully to forecast
> wholesale prices. When I train a GARCH model on one year worth of data,
> forecast for the last 3 days of training data, I get a mean absolute
> of 3.6642%. The error increases to 27.826% when I use two years worth of
> data, and decreases to 17.123% when using three years worth of past data.
> this expected?
> Also, when I plot the actual and fitted data against time, the GARCH
> seems to have done a really bad job, compared to a default ARIMA model.
> guessing this might be because people are actually using ARIMA models
> (added) GARCH errors, so a simple GARCH model-based forecast isn't doing
> exactly what they have done. Am I right? Why would the ARIMA be a better
> than GARCH?
> One author mentioned that they took a log of the prices (in their case it
> was hourly prices) before fitting a GARCH model. In your opinion, is that
> important factor in the kind of errors I am getting?
> Thanks and best regards
> Muhammad Saqib Ilyas
> PhD Student, Computer Science and Engineering
> Lahore University of Management Sciences
> Gretl-users mailing list
John C Frain
Trinity College Dublin
Gretl-users mailing list
Muhammad Saqib Ilyas
PhD Student, Computer Science and Engineering
Lahore University of Management Sciences