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A high-low model of daily stock price ranges

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  • Yan-Leung Cheung

    (Department of Economics and Finance, City University of Hong Kong, Kowloon, Hong Kong)

  • Yin-Wong Cheung

    (Department of Economics, University of California, Santa Cruz, California, USA; School of Economics and Finance, University of Hong Kong, Hong Kong)

  • Alan T. K. Wan

    (Department of Management Sciences, City University of Hong Kong, Kowloon, Hong Kong)

Abstract

We observe that daily highs and lows of stock prices do not diverge over time and, hence, adopt the cointegration concept and the related vector error correction model (VECM) to model the daily high, the daily low, and the associated daily range data. The in-sample results attest to the importance of incorporating high-low interactions in modeling the range variable. In evaluating the out-of-sample forecast performance using both mean-squared forecast error and direction of change criteria, it is found that the VECM-based low and high forecasts offer some advantages over alternative forecasts. The VECM-based range forecasts, on the other hand, do not always dominate-the forecast rankings depend on the choice of evaluation criterion and the variables being forecast. Copyright © 2008 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

Volume (Year): 28 (2009)
Issue (Month): 2 ()
Pages: 103-119

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Handle: RePEc:jof:jforec:v:28:y:2009:i:2:p:103-119

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966

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Citations

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Cited by:
  1. Massimiliano Caporin & Angelo Ranaldo, 2011. "On the Predictability of Stock Prices: a Case for High and Low Prices," Working Papers 2011-11, Swiss National Bank.
  2. Tao Xiong & Yukun Bao & Zhongyi Hu, 2014. "Multiple-output support vector regression with a firefly algorithm for interval-valued stock price index forecasting," Papers 1401.1916, arXiv.org.
  3. repec:wyi:wpaper:002040 is not listed on IDEAS
  4. He, Angela W.W. & Kwok, Jerry T.K. & Wan, Alan T.K., 2010. "An empirical model of daily highs and lows of West Texas Intermediate crude oil prices," Energy Economics, Elsevier, vol. 32(6), pages 1499-1506, November.

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