I am playing around with SP500 data from the
MASS package. From observation of the ACF and PACF there seem to be no significant autocorrelation. Now I want to model the volatility of the returns but I also want a mean equation. I'm not sure how I will get my mean equation as the ACF and PACF suggest that I can't use MA or AR terms in my mean equation.
Also, applying the
auto.arima function from the
forecast package yields an ARIMA(3,0,5) model. I am confused with such results as the ACF/PACF do not even show significance.
I am using the Box-Jenkins approach in my project and it wouldn't make sense to say that there are 3 AR and 5 MA terms when the ACF and PACF don't support what I say. I need to be able to explain why I am choosing this rank.