Malec, P.
A Semiparametric Intraday GARCH Model
WP Number: 1606
Abstract: We propose a multiplicative component model for intraday volatility. The model consists
of a seasonality factor, as well as a semiparametric and parametric component. The
former captures the well-documented intraday seasonality of volatility, while the latter
two account for the impact of the state of the limit order book, utilizing an additive
structure, and fluctuations around this state by means of a unit GARCH specification.
The model is estimated by a simple and easy-to-implement approach, consisting of
across-day-averaging, smooth-backfitting and QML steps. We derive the asymptotic
properties of the three component estimators. Further, our empirical application
based on high-frequency data for NASDAQ equities investigates non-linearities in
the relationship between the limit order book and subsequent return volatility and
underlines the usefulness of including order book variables for out-of-sample forecasting
performance.
Keywords: Intraday volatility, GARCH, smooth backfitting, additive models, limit
order book
JEL Codes: C14 C22 C53 C58
Author links:
PDF: wp1606.pdf 
Open Access Link: 10.17863/CAM.1081
