Variance, Return, and High-Low Price Spreads

19 Pages Posted: 23 May 2006

See all articles by Ji-Chai Lin

Ji-Chai Lin

Hong Kong PolyU

Michael S. Rozeff

SUNY at Buffalo - Department of Financial & Managerial Economics

Abstract

We report three new findings that rely upon the high-low price range as an estimate of stock return variance. The predictability of variance is associated with persistence in high prices and with correlated shocks to high and low prices. Excess stock returns are positively related to anticipated variance and inversely related to unanticipated variance. Lagged squared residuals in GARCH (1,1) models have no incremental explanatory power in the presence of forecasts of conditional volatility generated from high-low price spread models.

Keywords: variance, high-low spread, garch, volatility, stock returns

JEL Classification: C12, C13, C22, C52, C53, G14, G19

Suggested Citation

Lin, Ji-Chai and Rozeff, Michael S., Variance, Return, and High-Low Price Spreads. Journal of Financial Research, Vol. 17, No. 3, Fall 1994. Available at SSRN: https://ssrn.com/abstract=903509

Ji-Chai Lin

Hong Kong PolyU ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon
China

Michael S. Rozeff (Contact Author)

SUNY at Buffalo - Department of Financial & Managerial Economics ( email )

Buffalo, NY 14260
United States

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