Technical analysis based on high and low stock prices forecasts: evidence for Brazil using a fractionally cointegrated VAR model

Leandro Maciel

Empirical Economics, 2020, vol. 58, issue 4, No 2, 1513-1540

Abstract: Abstract This paper addresses the modeling and forecasting of daily high and low asset prices in the Brazilian stock market using a fractionally cointegrated vector autoregressive model (FCVAR). Forecasts are then used in a simple trading strategy to evaluate the application of technical analysis (TA) for equity shares traded at the B3. As a flexible framework, FCVAR is able to account for two fundamental patterns of high and low asset prices: their cointegrating relationship and the long-memory of their difference (i.e., the range), a measure of realized volatility. The analysis comprises the twenty most traded stocks at the B3 during the period from January 2010 to May 2017. Empirical findings indicate a significant cointegration relationship between daily high and low prices, which are integrated of an order close to the unity, as well as the range displays long memory and is in the stationary region in most of the cases. Based on historical data, results support that the high and low prices of equity shares are largely predictable and their forecasts can improve TA trading strategies applied on Brazilian equity shares. Further, the fractionally cointegrated approach appears as a potential forecasting tool for market practitioners on their investment strategies.

Keywords: High and low prices; Technical analysis; Fractional cointegration; Stock market; Forecasting (search for similar items in EconPapers)
JEL-codes: C31 C58 G17 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://link.springer.com/10.1007/s00181-018-1603-8 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:empeco:v:58:y:2020:i:4:d:10.1007_s00181-018-1603-8

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

DOI: 10.1007/s00181-018-1603-8

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().