APPLICATION OF THE ARCH and MS-ARCH MODELS TO THE IBEX-35 RETURN SERIES

In the analysis of financial time series, the Autoregressive models with Conditional Heteroskedasticity (ARCH) and their generalization, the GARCH models, have been widely used, demonstrating their good qualities for modeling the volatilities typical of this type of series. As an alternative, Switching Markov models have emerged that allow the inclusion of random phenomena as possible structural changes in the mean or variance process. This paper aims to demonstrate the best suitability of these regime-switching processes for modeling the conditional variance of the IBEX-35 Index returns.