[Q] MSc Dissertation question

Hey everyone, I am at a final stage of my dissertation but I am a bit confused.

I am trying to forecast volatility by using returns through GARCH(1,1) and EGARCH(1,1) models.

I use daily prices of indexes to generate returns, however, I am unsure if I should use either one of the formulas for the return series:

rt=100*ln(pt/pt-1) (1)

or simply rt=ln(pt/pt-1) (2)

My professor asked me to keep all my results to 2 d.p. Therefore when I specify my mean equations for the models (using equation 2, for intercepts I get 0.00 (0.00) (error term in parenthesis). However, if I use equation 1, my coefficients for intercepts are nicer since they are obviously multiplied by 100 and take the form of 0.05 (0.01).

The reason why I am wondering is that when I read through the journals on volatility forecasting everyone uses equation 2.

Will appreciate any help and advice!

– Confused Student

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Nevin Manimala

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