Information Flows Around the Globe: Predicting Opening Gaps from Overnight Foreign Stock Price Patterns
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.
|Date of creation:||2009|
|Date of revision:|
|Contact details of provider:|| Postal: Dept. of Economics and Econometrics, Universiteit van Amsterdam, Roetersstraat 11, NL - 1018 WB Amsterdam, The Netherlands|
Phone: + 31 20 525 52 58
Fax: + 31 20 525 52 83
Web page: http://www.fee.uva.nl/cendef/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hasbrouck, Joel, 1993. "Assessing the Quality of a Security Market: A New Approach to Transaction-Cost Measurement," Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 191-212.
- Berkman, Henk & Koch, Paul D. & Tuttle, Laura & Zhang, Ying Jenny, 2012. "Paying Attention: Overnight Returns and the Hidden Cost of Buying at the Open," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 47(04), pages 715-741, August.
- Michael J. Barclay & Terrence Hendershott, 2004. "Liquidity Externalities and Adverse Selection: Evidence from Trading after Hours," Journal of Finance, American Finance Association, vol. 59(2), pages 681-710, 04.
- Michael J. Barclay, 2003. "Price Discovery and Trading After Hours," Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1041-1073.
- Ananth Madhavan & Matthew Richardson & Mark Roomans, .
"Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks,"
Rodney L. White Center for Financial Research Working Papers
20-94, Wharton School Rodney L. White Center for Financial Research.
- Madhavan, Ananth & Richardson, Matthew & Roomans, Mark, 1997. "Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 1035-64.
- Ananth Madhavan & Matthew Richardson & Mark Roomans, 1996. "Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks," New York University, Leonard N. Stern School Finance Department Working Paper Seires 96-34, New York University, Leonard N. Stern School of Business-.
- French, Kenneth R. & Roll, Richard, 1986. "Stock return variances : The arrival of information and the reaction of traders," Journal of Financial Economics, Elsevier, vol. 17(1), pages 5-26, September.
- Gooijer, Jan G. De & Gannoun, Ali, 2000. "Nonparametric conditional predictive regions for time series," Computational Statistics & Data Analysis, Elsevier, vol. 33(3), pages 259-275, May.
- Bekiros, Stelios D. & Diks, Cees G.H., 2008.
"The nonlinear dynamic relationship of exchange rates: Parametric and nonparametric causality testing,"
Journal of Macroeconomics,
Elsevier, vol. 30(4), pages 1641-1650, December.
- Bekiros, S. & Diks, C.G.H., 2007. "The Nonlinear Dynamic Relationship of Exchange Rates: Parametric and Nonparametric Causality testing," CeNDEF Working Papers 07-08, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Hasbrouck, Joel, 1991. " Measuring the Information Content of Stock Trades," Journal of Finance, American Finance Association, vol. 46(1), pages 179-207, March.
- Gerety, Mason S & Mulherin, J Harold, 1994. "Price Formation on Stock Exchanges: The Evolution of Trading within the Day," Review of Financial Studies, Society for Financial Studies, vol. 7(3), pages 609-29.
- Guidolin, Massimo & Hyde, Stuart & McMillan, David & Ono, Sadayuki, 2009.
"Non-linear predictability in stock and bond returns: When and where is it exploitable?,"
International Journal of Forecasting,
Elsevier, vol. 25(2), pages 373-399.
- Massimo Guidolin & Stuart Hyde & David McMillan & Sadayuki Ono, 2009. "Non-linear predictability in stock and bond returns: when and where is it exploitable?," Working Papers 2008-010, Federal Reserve Bank of St. Louis.
- De Gooijer, Jan G. & Sivarajasingham, Selliah, 2008. "Parametric and nonparametric Granger causality testing: Linkages between international stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(11), pages 2547-2560.
- Muller, Hans-Georg & Stadtmuller, Ulrich & Yao, Fang, 2006. "Functional Variance Processes," Journal of the American Statistical Association, American Statistical Association, vol. 101, pages 1007-1018, September.
- Harrison Hong & Jiang Wang, 2000. "Trading and Returns under Periodic Market Closures," Journal of Finance, American Finance Association, vol. 55(1), pages 297-354, 02.
- Oldfield, George S, Jr & Rogalski, Richard J, 1980. " A Theory of Common Stock Returns over Trading and Non-Trading Periods," Journal of Finance, American Finance Association, vol. 35(3), pages 729-51, June.
When requesting a correction, please mention this item's handle: RePEc:ams:ndfwpp:09-13. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Cees C.G. Diks)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.