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Why It Is Ok To Use The Har-Rv(1,5,21) Model

  • Mihaela Craioveanu

    ()

    (University of Central Missouri)

  • Eric Hillebrand

    ()

    (Aarhus University)

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.

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File URL: http://faculty.ucmo.edu/econfinpapers/wpaper/wp1201.pdf
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Paper provided by University of Central Missouri, Department of Economics & Finance in its series Working Papers with number 1201.

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Length: 29 pages
Date of creation: Aug 2012
Date of revision: Aug 2012
Handle: RePEc:umn:wpaper:1201
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Web page: http://www.ucmo.edu/econ

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