There is vast literature on the empirical studies on GARCH like econometric models. But, the studies confine to testing the statistical significance of the parameters estimated under the model and assessing the properties of regression model.
My doubt is how an ordinary investor(like retail investor) can use GARCH like econometric models for taking a rational investment decision.
In other words, if i have been given the estimates of the GARCH model, next, what i should do to take a profitable trading decision in the market.
thanks in advance
I think GARCH is more for describing volatility rather than forecasting, if it is used for forecast, the interval is quite short (one day, two days, etc.). It might work with weeks, but I think the majority use GARCH for high frequency data.
Not sure what your trading strategy is, but GARCH uses historical data, and are evidences of random walk stock/exchange rate found plenty in the literature, aren't they? If they are random walk, I don't think reliance solely on historical data is comprehensive.
There are possibilities of using linear GARCH models for forecasting stock market behaviour. I will recommend the work of Arowolo W.B. The work is titled "Predicting Stock Prices Returns Using Garch Model". It was published by the International Journal Of Engineering And Science (IJES), Volume 2, Issue 5, Pages 32-37, 2013, ISSN(e): 2319 – 1813 ISSN(p): 2319 – 1805, www.theijes.com
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