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A Semiparametric Intraday GARCH Model

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  • Peter Malec

Abstract

We propose a multiplicative component model for intraday volatility. The model consists of a seasonality factor, as well as a semiparametric and parametric component. The former captures the well-documented intraday seasonality of volatility, while the latter two account for the impact of the state of the limit order book, utilizing an additive structure, and fluctuations around this state by means of a unit GARCH specification. The model is estimated by a simple and easy-to-implement approach, consisting of across-day-averaging, smooth-backfitting and QML steps. We derive the asymptotic properties of the three component estimators. Further, our empirical application based on high-frequency data for NASDAQ equities investigates non-linearities in the relationship between the limit order book and subsequent return volatility and underlines the usefulness of including order book variables for out-of-sample forecasting performance.

Suggested Citation

  • Peter Malec, 2016. "A Semiparametric Intraday GARCH Model," Cambridge Working Papers in Economics 1633, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1633
    Note: pm563
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    File URL: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1633.pdf
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    Cited by:

    1. Qinkai Chen & Christian-Yann Robert, 2021. "Multivariate Realized Volatility Forecasting with Graph Neural Network," Papers 2112.09015, arXiv.org, revised Dec 2021.

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    More about this item

    Keywords

    Intraday volatility; GARCH; smooth backfitting; additive models; limit order book.;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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