medium · Quantitative Finance
How does 'volatility clustering' (GARCH) differ conceptually from the 'unit root' (ADF) property?
- GARCH describes time-varying variance of stationary returns, while unit roots describe non-stationary levels.
- Unit roots imply variance is constant, while GARCH implies mean is constant.
- They are the same thing; GARCH is a test for unit roots in the variance.
- Unit roots describe the variance, while GARCH describes the mean.
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