Recently, the Journal of Applied Econometrics, a globally renowned academic journal in econometrics announced that its 2012-2013 "Richard Stone Best Paper Prize in Applied Econometrics" was given to a paper of Huang Zhuo, Assistant Professor at the National School of Development (NSD), Peking University; “Realized GARCH: A Joint Model for Returns and Realized Measures of Volatility”, (coauthored with Peter Reinhard Hansen and Howard Howan Shek), published in September 2012.
Founded in 1991, The "Richard Stone Prize" is for the best paper published on the Journal of Applied Econometrics biannually. It’s one of the most important academic awards in the field of applied econometrics.
Volatility modeling of financial assets is a core issue in financial theories and practices. The generalized autoregressive conditional heteroskedasticity (GARCH) model has become the benchmark model, given its simple parameter estimation methods and relatively more accurate forecasts. However, when the volatility dramatic changes (such as during the financial crisis), the GARCH model is underperforming, because it utilizes daily rate of returns (which, in the fluctuation of the market, contains strong noises) to update future volatility forecast. However, using high-frequency financial data, realized measures of volatility can be calculated, and its accuracy is significantly better than that of the daily rate of returns. Huang Zhuo and his collaborators managed to combine the traditional GARCH model with realized measures of volatility, and proposed a new volatility modeling framework, the “Realized GARCH”, which promptly updates with the sudden changes in volatility and significantly improves forecast results than GARCH models.
Academically, this paper links the realized volatility of high-frequency data to GARCH, and links a popular research to a traditional study, which has drawn great attention from the financial econometrics academia. Since its 2012 publication, the paper has been well cited by papers in top economics journals. Within two years, it was cited in Google Scholar for about 100 times. Also, because Realized GARCH has shared the flexibility of stochastic volatility and the feasibility of GARCH models, along with its good extensibility, it has shown broad application potential in financial forecasting, derivatives pricing and risk management. Several publications in financial econometrics have introduced this model, while some Wall Street companies has started to apply it to investment practices.
Before joining the NSD at Peking University, Huang received his Ph.D. in Economics at Stanford University in January 2011. During his research, he has won several influential awards, including the "Best PhD Candidacy Paper Award”, from Department of Economics, Stanford University; the “Progress Award for Young Researchers in Finance” from Cao Fengqi Financial Development Fund, Peking University; 2nd Prize in Young Teacher Teaching Skills Competition, and the “Excellent Instructor”.
