WHY IT IS OK TO USE THE HAR-RV(1,5,21) MODEL

Mihaela Craioveanu () and Eric Hillebrand ()
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Mihaela Craioveanu: University of Central Missouri

Working Papers from University of Central Missouri, Department of Economics & Finance

Abstract: The lag structure (1,5,21) is most commonly used for the HAR-RV model for realized volatility (Corsi 2009), where the terms are thought to represent a daily, a weekly, and a monthly time scale. The aggregation of the three scales approximates long mem- ory. We explore flexible lag selection for the model on realized volatility constructed from tick-level data of the thirty constituting stocks of the Dow Jones Industrial Average between 1995 and 2007. The computational costs for flexible lag selection are substantial, and we use a parallel computing environment. We find that flexible lags do not improve in-sample or out-of-sample fit. Our results therefore confirm the standard practice in a large-scale data application.

Keywords: Time Series; Financial Econometrics; HAR-RV Model (search for similar items in EconPapers)
Pages: 29 pages
Date: 2012-08, Revised 2012-08
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Citations: View citations in EconPapers (18)

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