medium · Quantitative Finance prob-stats
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 the variance stays constant over time, while GARCH implies the mean stays constant.
- They are identical concepts; GARCH is simply a specific statistical test for unit roots in the variance.
- Unit roots describe persistent, growing changes in variance, while GARCH describes changes in the conditional mean.
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