Extended realized GARCH models

Abstract

We introduce a new class of models that extends the Realized GARCH models of Hansen et al. (J Appl Econom 27:877–906, 2012, [10]). Our model generalizes the original specification of Hansen et al. (J Appl Econom 27:877–906, 2012, [10]). along three different directions. First, it features a time varying volatility persistence. Namely, the shock response coefficient in the volatility equation adjusts to the time varying accuracy of the associated realized measure. Second, our framework allows to consider, in a parsimonious way, the inclusion of multiple realized measures. Finally, it allows for heteroskedasticity of the noise component in the measurement equation. The appropriateness of the proposed class of models is appraised by means of an application to a set of stock returns data.