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High-low range in GARCH models of stock return volatility

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  • Peter Molnár

Abstract

We suggest a simple and general way to improve the GARCH volatility models using the intraday range between the highest and the lowest price to proxy volatility. We illustrate the method by modifying a GARCH(1,1) model to a range-GARCH(1,1) model. Our empirical analysis conducted on stocks, stock indices and simulated data shows that the range-GARCH(1,1) model performs significantly better than the standard GARCH(1,1) model both in terms of in-sample fit and out-of-sample forecasting ability.

Suggested Citation

  • Peter Molnár, 2016. "High-low range in GARCH models of stock return volatility," Applied Economics, Taylor & Francis Journals, vol. 48(51), pages 4977-4991, November.
    • Handle: RePEc:taf:applec:v:48:y:2016:i:51:p:4977-4991
    DOI: 10.1080/00036846.2016.1170929
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