A High-Low Model of Daily Stock Price Ranges

Yan-Leung Cheung, Yin-Wong Cheung and Alan Wan ()
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Yan-Leung Cheung: City University of Hong Kong

No 32009, Working Papers from Hong Kong Institute for Monetary Research

Abstract: We observe that daily highs and lows of stock prices do not diverge over time and, hence, adopt the cointegration concept and the related vector error correction model (VECM) to model the daily high, the daily low, and the associated daily range data. The in-sample results attest the importance of incorporating high-low interactions in modeling the range variable. In evaluating the out-of-sample forecast performance using both mean-squared forecast error and direction of change criteria, it is found that the VECM-based low and high forecasts offer some advantages over some alternative forecasts. The VECM-based range forecasts, on the other hand, do not always dominate - the forecast rankings depend on the choice of evaluation criterion and the variables being forecasted.

Keywords: Daily High; Daily Low; VECM Model; Forecast Performance; Implied Volatility (search for similar items in EconPapers)
JEL-codes: C32 C53 G10 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2009-01
New Economics Papers: this item is included in nep-fmk and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Related works:
Journal Article: A high-low model of daily stock price ranges (2009)
Working Paper: A High-Low Model of Daily Stock Price Ranges (2008)
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