An Empirical Model of Daily Highs and Lows
City University of Hong Kong - Department of Economics & Finance; University of California at Santa Cruz - Department of Economics
CESifo Working Paper Series No. 1695
HKIMR Working Paper No. 7/2006
We construct an empirical model for daily highs and daily lows of US stock indexes based on the intuition that highs and lows do not drift apart over time. Our empirical results show that daily highs and lows of three main US stock price indexes are cointegrated. Data on openings, closings, and trading volume are found to offer incremental explanatory power for variations in highs and lows within the VECM framework. With all these variables, the augmented VECM models explain 40% to 50% of variations in daily highs and lows. The generalized impulse response analysis shows that the responses of daily highs and daily lows to the shocks depend on whether data on openings, closings, and trading volume are included in the analysis.
Number of Pages in PDF File: 33
Keywords: high, low open, close, trading volume, VECM model
JEL Classification: C32, G10working papers series
Date posted: April 24, 2006
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