Financial Time Series Models

Abstract

This section deals with financial time series analysis. The statistical properties of asset and return time series are inuenced by the media (daily news on the radio, television and newspapers) that informs us about the latest changes in stock prices, interest rates and exchange rates. This information is also available to traders who deal with immanent risk in security prices. It is therefore interesting to understand the behavior of asset prices. Economic models on the pricing of securities are mostly based on theoretical concepts which involve the formation of expectations, utility functions and risk preferences. In this section we concentrate on answering the empirical questions. Firstly, given a data set we aim to specify an appropriate model reecting the main characteristics of the empirically observable stock price process and we wish to know whether the assumptions underlying the model are fulfilled in reality or whether the model has to be modified. A new model on the stock price process could possibly effect the function of the markets. To this end we apply statistical tools to empirical data and start with considering the concepts of univariate analysis before moving on to multivariate time series.