The Use Of Threshold Autoregressive Models In Stock Markets

This work investigates the potential of Threshold Models in interpreting some characteristics of Financial Markets through an application to three stocks.we will use the UP/DOWN and trading volume of stocks as Threshold Variable to build a threshold autoregressive model.In the stock market, the price of the stock is influenced by various factors.Trading volume and the UP/DOWN of stocks are tow very important factors. Generaly speaking , business both sides obtain the confirmation to the price through the size of the trading volume .The confirmation is large , the trading volume is large; The confirmation is little , the trading volume is small.This kind of market behavior of both sides demonstrates one such trend law :when the price increases, the quantity increases;when the price falls, the quantity reduces.In finance,the majority of data are non-linear, this obtained people's recognition. The question which must be solved is that we select which type of non-linear model to fit the dates. The performances of the TAR model are evaluated in comparison with other competitive models,such as a linear AR,a GARCH,a CHARMA model. The TAR model is not only capable of capturing the various characteristics of volatility ,but is in particular the only one which can distinguish a persistent shock of the market from an extraordinary shock.Its superior performance is even more evident in particularly turbulent moments of the market.From a modeling point of view the innovative procedure introduced by Tasy is employed here.He pointed out this methodology in order to make Threshold Models tractable in application,since previous techniques were expensive.