Modelling the Impact of Overnight Surprises on Intra-daily Stock Returns

Giampiero Gallo (), Yongmiao Hong and Tae-Why Lee
Additional contact information
Tae-Why Lee: University of California, Riverside, Department of Economics

Econometrics Working Papers Archive from Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti"

Abstract: In this paper we examine under what circumstances the information accumulated during market closing time and conveyed to the price formation at market opening may be exploited to predict where the stock price will be at the end of the trading day. In our sample of three financial time series, we find that, in spite of linear uncorrelatedness, there exists a strong nonlinear dependence structure in the conditional mean of the intra-daily returns. To model this structure we use the functional-coefficient (FC) model of Cai, Fan, and Yao (2000) where the coefficients are time-varying and dependent on the state of stock return volatility. Out-of-sample forecast performances of the FC models and linear models where the coefficients are constant are also compared using the criteria of mean square forecast errors, trading returns, and directional forecasts.

Keywords: Functional-coefficient model; Nonlinearity; Predictive ability; Volatility. (search for similar items in EconPapers)
JEL-codes: C2 C5 F3 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2001-10-24
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
https://labdisia.disia.unifi.it/ricerca/pubblicazi ... s/2001/wp2001_03.pdf (application/pdf)

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:fir:econom:wp2001_03

Access Statistics for this paper

More papers in Econometrics Working Papers Archive from Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti" Viale G.B. Morgagni, 59 - I-50134 Firenze - Italy. Contact information at EDIRC.
Bibliographic data for series maintained by Fabrizio Cipollini ().