Time series analysis on FTSE100

The purpose of this paper is to investigate the time series relationship of FTSE returns.

Using FTSE daily price data from 1 July 2003 to 28 September 2006.

The time series analysis on the returns data yields the a mean equation of form AR (1) and volatility equation of form EGARCH (1,1) Asymmetry (1) , the equations with their parameters are:

The mean model suggests that the returns of FTSE has a daily upward drift of 0.000317 with previous day’s return having a small yet negative relationship on current day’s return.

The volatility model suggests that there is leverage effect as indicated by the

term and also clustering effects as indicated by the

term.

The limitation of this analysis is the derivation of the parameters using maximum likelihood method and assuming the returns data to be normally distributed. When in reality the returns data is only approximately normal in shape and not normal as indicated by formal tests.

The study was conducted with the aid of eviews and can be downloaded in it's entirety here