Monitoring Financial Processes with ARMA-GARCH Model Based on Shewhart Control Chart (Case Study: Tehran Stock Exchange)

Abstract

Financial surveillance is an interesting area after financial crisis in recent years. In this subject, important financial indices are monitored using control charts. Control chart is a powerful instrument for detecting assignable causes which is considerably developed in industrial and service environments. In this paper, a monitoring procedure based on Shewhart control chart is proposed to monitor financial processes modeled with ARMA-GARCH time series structure. The effect of parameter estimation and power of change detection are evaluated through simulation studies. Then, the proposed method is applied to monitor Tehran Stock Exchange price index (TEPIX) as the main motivation of this research. The obtained results show the ability of the proposed method in comparison with market analysis.