WASET
	%0 Journal Article
	%A G. L. C. Yap
	%D 2016
	%J International Journal of Mathematical and Computational Sciences
	%B World Academy of Science, Engineering and Technology
	%I Open Science Index 120, 2016
	%T Normalizing Logarithms of Realized Volatility in an ARFIMA Model
	%U https://publications.waset.org/pdf/10005813
	%V 120
	%X Modelling realized volatility with high-frequency returns is popular as it is an unbiased and efficient estimator of return volatility. A computationally simple model is fitting the logarithms of the realized volatilities with a fractionally integrated long-memory Gaussian process. The Gaussianity assumption simplifies the parameter estimation using the Whittle approximation. Nonetheless, this assumption may not be met in the finite samples and there may be a need to normalize the financial series. Based on the empirical indices S&P500 and DAX, this paper examines the performance of the linear volatility model pre-treated with normalization compared to its existing counterpart. The empirical results show that by including normalization as a pre-treatment procedure, the forecast performance outperforms the existing model in terms of statistical and economic evaluations.

	%P 609 - 614