On the Predictability of Stock Prices: A Case for High and Low Prices

Massimiliano Caporin, Angelo Ranaldo and Paolo Santucci de Magistris ()
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Paolo Santucci de Magistris: University of Padova

No 136, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: Contrary to the common wisdom that asset prices are barely possible to forecast, we show that high and low prices of equity shares are largely predictable. We propose to model them 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 realized volatility. Investment strategies based on FVECM predictions of high-low US equity prices as exit-entry signals deliver a superior performance even on a risk-adjusted basis.

Keywords: high and low prices; predictability of asset 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)
Pages: 25 pages
Date: 2011-06
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: On the predictability of stock prices: A case for high and low prices (2013)
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)
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Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0136

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