Hi All,
Is it possible to use GARCH with Fama French 3 or 5 factor models? Is there any article that uses this technique and I can refer to it?
I want to study the impact of option trading on volatility and underlying stock price.
I would say yes, but it depends on what exactly do you mean. You can estimate FF 3 or 5 factor model, obtain residuals from such model, and estimate GARCH model for these residuals.
Thank you Peter Molnár . I actually want to estimate and measure volatility for stocks.
I want to make an event study to measure the impact of option's introduction to stock price and volatility, so for the volatility I want to use the GARCH Model
Then I do not understand what you want. In order to "to measure the impact of option's introduction to stock price and volatility" you do not need FF3 or FF5 at all.
Peter Molnár let me just explain to you. I will use FF3 or FF5 to get the estimated return ( I will do an event study and the model I will use is the FF3/5 ) after getting the effect on the return, which reflects the price effect. I will test also the volatility and I want to test it by using the same model FF3 / 5 and as per my understanding that GARCH model is the one that helps in testing or getting the volatility
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