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

Item Type Journal paper
Abstract

Contrary to the common wisdom that asset prices are barely possible to forecast, we show that 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.

Authors Caporin, Massimiliano; Ranaldo, Angelo & Santucci de Magistris, Paolo
Journal or Publication Title Journal of Banking and Finance
Language English
Keywords high and low prices, predictability of asset prices, range, fractional cointegration, exit/entry trading signals, chart/technical analysis
Subjects business studies
HSG Classification contribution to scientific community
Refereed Yes
Date December 2013
Publisher Elsevier
Place of Publication Amsterdam
Volume 37
Number 12
Page Range 5132-5146
Number of Pages 15
ISSN 0378-4266
ISSN-Digital 1872-6372
Publisher DOI 10.1016/j.jbankfin.2013.05.024
Depositing User Prof. Dr. Angelo Ranaldo
Date Deposited 04 Dec 2012 08:58
Last Modified 23 Aug 2016 11:15
URI: https://www.alexandria.unisg.ch/publications/218462

Download

[img]
Preview
Text
12_13_Ranaldo et al_On the Predictability.pdf

Download (432kB) | Preview

Citation

Caporin, Massimiliano; Ranaldo, Angelo & Santucci de Magistris, Paolo (2013) On the Predictability of Stock Prices: a Case for High and Low Prices. Journal of Banking and Finance, 37 (12). 5132-5146. ISSN 0378-4266

Statistics

https://www.alexandria.unisg.ch/id/eprint/218462
Edit item Edit item
Feedback?