APPLICATION OF THE ARCH and MS-ARCH MODELS TO THE
IBEX-35 RETURN SERIES

In the analysis of financial time series, the Autoregressive models with ConditionalHeteroskedasticity (ARCH) and their generalization, the GARCH models, have beenwidely used, demonstrating their good qualities for modeling the volatilities typical of thistype of series. As an alternative, Switching Markov models have emerged that allow theinclusion of random phenomena as possible structural changes in the mean or varianceprocess. This paper aims to demonstrate the best suitability of these regime-switchingprocesses for modeling the conditional variance of the IBEX-35 Index returns.