Garch Parameter Estimation Using High-Frequency Data

Visser, Marcel P. (2008): Garch Parameter Estimation Using High-Frequency Data.

Abstract

Estimation of the parameters of Garch models for financial data is typically based on daily close-to-close returns. This paper shows that the efficiency of the parameter estimators may be greatly improved by using volatility proxies based on intraday data. The paper develops a Garch quasi maximum likelihood estimator (QMLE) based on these proxies. Examples of such proxies are the realized volatility and the intraday high-low range. Empirical analysis of the S&P 500 index tick data shows that the use of a suitable proxy may reduce the variances of the estimators of the Garch autoregression parameters by a factor 20.

• Item Type: MPRA Paper
• Language: English
• Keywords: volatility estimation; quasi maximum likelihood; volatility proxy; Gaussian QMLE; log-Gaussian QMLE; autoregressive conditional heteroscedasticity
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; G - Financial Economics > G1 - General Financial Markets; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C14 - Semiparametric and Nonparametric Methods: General; C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models

References

References in paper.