GARMA, HAR and Rules of Thumb for Modelling Realized Volatility

David Allen and Shelton Peiris
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Shelton Peiris: School of Mathematics and Statistics, University of Sydney, Camperdown, NSW 2006, Australia

Risks, 2023, vol. 11, issue 10, 1-15

Abstract: This paper features an analysis of the relative effectiveness, in terms of the Adjusted R-Square, of a variety of methods of modelling realized volatility (RV), namely the use of Gegenbauer processes in Auto-Regressive Moving Average format, GARMA, as opposed to Heterogenous Auto-Regressive HAR models and simple rules of thumb. The analysis is applied to two data sets that feature the RV of the S&P500 index, as sampled at 5 min intervals, provided by the OxfordMan RV database. The GARMA model does perform slightly better than the HAR model, but both models are matched by a simple rule of thumb regression model based on the application of lags of squared, cubed and quartic, demeaned daily returns.

Keywords: GARMA; Gegenbauer processes; HAR models; realized volatility; rules of thumb (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:11:y:2023:i:10:p:179-:d:1260782

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