Robust time series clustering of GARCH (1,1) models with outliers

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GARCH models can contain outliers, such as Additive Level Outliers (ALO) and/or Additive Volatility Outliers (AVO), so a robust parameter estimation is used to overcome the presence of outliers. This study uses Quasi-Maximum Likelihood Estimation (QMLE) and M-estimation to estimate the parameters of the GARCH model containing outliers. Hierarchical and K-means clustering algorithms are then used to cluster time-series data based on distances calculated from these parameter estimates. The proposed approach applies hierarchical and K-means clustering using distances derived from QMLE and M-estimation results for GARCH (1,1) models containing outliers for clustering with simulation data and a case study using stock data listed in the Indonesia Stock Exchange. The results show that hierarchical and K-means clustering with distance between two GARCH (1,1) models based on M-estimation produces good clusters with smaller C index than QMLE estimations for simulation data and the case study of stock data in Indonesia.