I´m currently looking to implement an intraday volatility model and I´m new at the quant world and I learned how superior is GARCH family is for daily volatilities, but in the research stage I found out that GARCH daily model is not good for intraday volatilities. Instead, they present a realized GARCH or use realized volatilities models, so I was wondering if someone can give a simple explanation of why is that?

I would be really thankful for your answer.

  • $\begingroup$ Can you cite the reference? $\endgroup$ – AlRacoon Sep 16 '20 at 20:19
  • $\begingroup$ Have you read up on bid-ask bounce and "microstructure noise" (i.e. said bounce) polluting estimation? $\endgroup$ – kurtosis Sep 16 '20 at 21:28
  • $\begingroup$ Yes of course @AIRacoon, I had found "Forecasting intraday volatility: Multiplicative Component Realized GARCH", "Forecasting Intraday Volatility and Value-at-Risk with High-Frequency Data" and "Realized GARCH: A joint Model for returns and realized measures of Volatility". These three suggest the use of the realized GARCH, I´m doing my best to break down the main ideas of each one, but I get a little bit lost, it would help to have the bigger picture clear. Thank you for your interest in this question! $\endgroup$ – Guillermo Sepulveda Sep 16 '20 at 22:26
  • $\begingroup$ I haven´t read that one @kurtosis, I will do it right away, thank you for your interest in this question! $\endgroup$ – Guillermo Sepulveda Sep 16 '20 at 22:26

The main difference between GARCH and realized GARCH models applied on daily or intradily data might be not the time period but rather the data availability and its use. A GARCH model uses very little information, namely, only the observed price or return series. Often it squeezes out quite good results from it. When additional information such as data on realized volatility is available, other models such as realized GARCH can be built yielding better results. Thus, models that incorporate this additional information can beat GARCH models that do not make use of it.

  • $\begingroup$ Sorry, I didn´t answer a comment I´m new at this forum. I found it very helpful, that is why I add a positive vote to your answer. And thank you so much for the answer!! $\endgroup$ – Guillermo Sepulveda Dec 14 '20 at 22:42
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    $\begingroup$ @GuillermoSepulveda, you are welcome! If the answer solves your problem, you may accept it by clicking on a tick mark to the left. $\endgroup$ – Richard Hardy Dec 15 '20 at 6:49

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