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I was wondering: is there are a package in R for automated GARCH model selection? I'm thinking of something like what the forecast package does for ARIMA models.

If I implement this myself, would it be appropriate to just do a grid search over the possible parameters for the GARCH and ARIMA parts of the model (using the rugarch package), and select the one with the lowest AIC (or BIC)?

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    $\begingroup$ Did you come up with anything interesting in the end? $\endgroup$ – Richard Hardy Mar 5 '17 at 18:48
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My experience with equities suggested that if you are confined to garch(p,q), then garch(1,1) is what you will want. Using a components model (Lee and Engle) is better -- it is sort of like a garch(2,2) but not quite the same.

When modeling multivariate garch (where there was a lot of choice in parameterization), it seemed to be that BIC was defnitely better than AIC. BIC has a larger penalty and so suggests smaller models. It looked like the penalty should be even bigger than in BIC -- that the BIC models were still too big.

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  • $\begingroup$ Thanks for the info. I'm trying to estimate a model that has an ARIMA and a GARCH component, and I was already thinking of constraining the garch component to (1,1). $\endgroup$ – Zach Jan 4 '12 at 20:29
  • $\begingroup$ The garch estimation and the ARMA estimation are pretty much independent of each other -- the ARMA estimates you come up with are likely to be very similar whether you estimate with the returns or garch residuals. $\endgroup$ – Patrick Burns Jan 5 '12 at 9:09
  • $\begingroup$ So could I could use the arima parameters from auto.arima in the forecast package, and just add garch(1,1) errors using rugarch? That would certainly make things simpler. $\endgroup$ – Zach Jan 5 '12 at 13:01
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    $\begingroup$ Simpler and very likely to be seriously close to what you would get doing it the "right" way. $\endgroup$ – Patrick Burns Jan 5 '12 at 17:45
  • $\begingroup$ @PatrickBurns, are you refering to Engle & Lee "A permanent and transitory component model of stock return volatility" University of California at San Diego, Economics Working Paper Series (1993)? I cannot find the paper itself, only references... Could you include a link? $\endgroup$ – Richard Hardy Feb 17 '15 at 20:25

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