On the predictability of stock prices: A case for high and low prices

Massimiliano Caporin, Angelo Ranaldo and Paolo Santucci de Magistris

Journal of Banking & Finance, 2013, vol. 37, issue 12, 5132-5146

Abstract: This paper contributes to technical analysis (TA) literature by showing that the high and low prices of equity shares are largely predictable only on the basis of their past realizations. Moreover, using their forecasts as entry/exit signals can improve common TA trading strategies applied on US equity prices. We propose modeling high and low prices using a simple implementation of a fractional vector autoregressive model with error correction (FVECM). This model captures two fundamental patterns of high and low prices: their cointegrating relationship and the long-memory of their difference (i.e., the range), which is a measure of volatility.

Keywords: High and low prices; Range; Fractional cointegration; Exit/entry trading signals; Chart/technical analysis (search for similar items in EconPapers)
JEL-codes: C53 C58 G11 G17 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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Related works:
Working Paper: On the Predictability of Stock Prices: a Case for High and Low Prices (2012)
Working Paper: On the Predictability of Stock Prices: A Case for High and Low Prices (2011)
Working Paper: On the Predictability of Stock Prices: a Case for High and Low Prices (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:12:p:5132-5146

DOI: 10.1016/j.jbankfin.2013.05.024

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