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

Massimiliano Caporin and Angelo Ranaldo

No 2011-11, Working Papers from Swiss National Bank

Abstract: Contrary to the common wisdom that asset prices are hardly 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: 34 pages
Date: 2011
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 (2)

Downloads: (external link)
https://www.snb.ch/en/publications/research/workin ... orking_paper_2011_11 (text/html)

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)
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:snb:snbwpa:2011-11

Access Statistics for this paper

More papers in Working Papers from Swiss National Bank Contact information at EDIRC.
Bibliographic data for series maintained by Enzo Rossi ().