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An Empirical Model of Daily Highs and Lows

  • Yin-Wong Cheung

We construct an empirical model for daily highs and daily lows of US stock indexes based on the intuition that highs and lows do not drift apart over time. Our empirical results show that daily highs and lows of three main US stock price indexes are cointegrated. Data on openings, closings, and trading volume are found to offer incremental explanatory power for variations in highs and lows within the VECM framework. With all these variables, the augmented VECM models explain 40% to 50% of variations in daily highs and lows. The generalized impulse response analysis shows that the responses of daily highs and daily lows to the shocks depend on whether data on openings, closings, and trading volume are included in the analysis.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1695.

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Date of creation: 2006
Date of revision:
Handle: RePEc:ces:ceswps:_1695
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  1. Yin-Wong Cheung & Menzie D. Chinn, 2000. "Currency Traders and Exchange Rate Dynamics: A Survey of the U.S. Market," CESifo Working Paper Series 251, CESifo Group Munich.
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  16. Cheung, Yin-Wong & Wong, Clement Yuk-Pang, 2000. "A survey of market practitioners' views on exchange rate dynamics," Journal of International Economics, Elsevier, vol. 51(2), pages 401-419, August.
  17. Cheung, Yin-Wong & Lai, Kon S, 1995. "Lag Order and Critical Values of a Modified Dickey-Fuller Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(3), pages 411-19, August.
  18. Chou, Ray Yeutien, 2005. "Forecasting Financial Volatilities with Extreme Values: The Conditional Autoregressive Range (CARR) Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(3), pages 561-82, June.
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