Why ARCH/GARCH Are Used in Finance? An Application of Sport Related Stocks in Turkey

Abstract

Financial econometricians restrict attention to modelling and forecasting the conditional mean and the conditional variance of such series, in other words, the return and risk of financial assets. As known, financial time series bring out typical nonlinear characteristics. The random sequences of abnormal observations and the plausible existence of regimes within, which returns and volatility display different dynamic behaviour, are important examples of the features. The volatility of returns is a central issue of finance that is why many banks and other financial institutions use the concept of “value at risk” as a way to measure the risks faced by their portfolios. Our study examines the sport related stocks and their return fluctuations. In this study Following stocks are the concern of this study; BJKAS, FENER, GSRAY and TSPOR. We ended with some points that ARCH and GARCH models are the first models when the financial econometricians started to deal volatility clustering, ARCH and GARCH models approach heteroskedasticity as a variance model, does not look as a problem.