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I hav minute bar FX data and I am trying to fit a realized variance GARCH model using rugarch. This normally works by providing daily returns and daily realized volatility to the model.

Realized Variance is normally calculated as a daily statistic so you get a value for each day. Considering I am using minute bar data, I should have enough observations per hour to calculate hourly realized variance. Would hourly (or N-hourly) realized variance make sense with GARCH models?

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  • $\begingroup$ From what I have heard (no source I can give right now) ARCH effects usually don't show up in intraday data. However, there is also fractional garch which apparently works better at higher frequencies, see : quant.stackexchange.com/questions/7302/… $\endgroup$ Jun 21 at 14:26
  • $\begingroup$ The multiplicative component GARCH of Engle & Sokalska (2012), is a known model for forecasting intraday returns and volatility. It accounts for intraday periodicity (also called diurnal pattern), which is present in many liquid financial markets, including FX (see this paper) It would probably be more applicable for intraday forecasts, than using the realized GARCH model in an unintended way. $\endgroup$
    – Pleb
    Jun 21 at 17:24

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