Predicting returns

In the previous exercises, we have assumed a constant mean by setting

garchspec <- ugarchspec(mean.model = list(armaOrder = c(0,0)),
                        variance.model = list(model = "gjrGARCH"),
                        distribution.model = "sstd")

In practice the predicted return \(\mu_t\) is often time-varying. To capture this time-variation, one can use a GARCH-in-mean, AR(1), MA(1), ARMA(1,1) model, among others.

These models are implemented in rugarch and can be specified by changing the arguments for mean.model.

Which of the following statements is incorrect?

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