Stock market returns usually satisfy martingale property, and are
uncorrelated. I think you should check your calculations again for errors.
Are you sure that you are working with returns and not prices? I guess
that by "heavy correlation" you mean that estimated autoregressive
coefficient is close to 1, which holds for prices. Just a suggestion, hope
it helps.
On Tue, 19 Feb 2002, Daan Taks wrote:
> I have a question about my residuals. When testing for autocorrelation
> I come to the conclusion that the models (garch, Egarch, GJR a.k.a.
> Tarch) remove the correlation from the squared standardized residuals
> but not from the standardized residuals. Are my models misspecified??
> I use returns from the FTSE, the DAX, and the S&P. These returns are
> (heavily) correlated, should a garch model remove the correlation of
> the returns? Or should it only remove the correlation of the squared
> returns??
> Thanks.
>
>
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