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Information Flows Around the Globe: Predicting Opening Gaps from Overnight Foreign Stock Price Patterns

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  • De Gooijer, J.

    ()
    (Universiteit van Amsterdam)

  • Diks, C.G.H.

    ()
    (Universiteit van Amsterdam)

  • Gatarek, L.

    (Tinbergen Institute)

Abstract

This paper describes a forecasting exercise of close-to-open returns on major global stock indices, based on price patterns from foreign markets that have become available overnight. As the close-to-open gap is a scalar response variable to a functional variable, it is natural to focus on functional data analysis. Both parametric and non-parametric modeling strategies are considered, and compared with a simple linear benchmark model. The overall best performing model is nonparametric, suggesting the presence of nonlinear relations between the overnight price patterns and the opening gaps. This effect is mainly due to the European and Asian markets. The North-American and Australian markets appear to be informationally more efficient in that linear models using only the last available information perform well.

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File URL: http://www1.fee.uva.nl/cendef/publications/papers/nfda_CeNDEF_WP_0913.pdf
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Bibliographic Info

Paper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 09-13.

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Date of creation: 2009
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Handle: RePEc:ams:ndfwpp:09-13

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Phone: + 31 20 525 52 58
Fax: + 31 20 525 52 83
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Web page: http://www.fee.uva.nl/cendef/
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