Information Flows around the Globe: Predicting Opening Gaps from Overnight Foreign Stock Price Patterns
Jan G. Gooijer,
Cees G.H. Diks and
Lukasz T. Gatarek
Additional contact information
Cees G.H. Diks: University of Amsterdam
Lukasz T. Gatarek: Erasmus University Rotterdam
No 09-107/4, Tinbergen Institute Discussion Papers from Tinbergen Institute
Abstract:
See also the publication J.G. de Gooijer, C.G.H. Diks & L.T. Gatarek, 2012, 'Information flows around the globe: predicting opening gaps from overnight foreign stock price patterns', Central European Journal of Economic Modelling and Econometrics , 4(1), 23-44.
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.
Keywords: Close-to-open gap forecasting; Functional data analysis; International stock markets; Nonparametric modeling (search for similar items in EconPapers)
JEL-codes: C14 C53 F37 G17 (search for similar items in EconPapers)
Date: 2009-11-19
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Citations: View citations in EconPapers (2)
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