WHY IT IS OK TO USE THE HAR-RV(1,5,21) MODEL

The lag structure (1,5,21) is most commonly used for the HAR-RV model for realized volatility (Corsi 2009), where the terms are thought to represent a daily, a weekly, and a monthly time scale. The aggregation of the three scales approximates long mem- ory. We explore flexible lag selection for the model on realized volatility constructed from tick-level data of the thirty constituting stocks of the Dow Jones Industrial Average between 1995 and 2007. The computational costs for flexible lag selection are substantial, and we use a parallel computing environment. We find that flexible lags do not improve in-sample or out-of-sample fit. Our results therefore confirm the standard practice in a large-scale data application.