An Empirical Model of Daily Highs and Lows

CESifo Working Paper Series No. 1695

HKIMR Working Paper No. 7/2006

33 Pages Posted: 24 Apr 2006

See all articles by Yin-Wong Cheung

Yin-Wong Cheung

University of California, Santa Cruz - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2006

Abstract

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.

Keywords: high, low open, close, trading volume, VECM model

JEL Classification: C32, G10

Suggested Citation

Cheung, Yin-Wong, An Empirical Model of Daily Highs and Lows (March 2006). CESifo Working Paper Series No. 1695, HKIMR Working Paper No. 7/2006, Available at SSRN: https://ssrn.com/abstract=897900 or http://dx.doi.org/10.2139/ssrn.897900

Yin-Wong Cheung (Contact Author)

University of California, Santa Cruz - Department of Economics ( email )

Engineering 2, Department of Economics
University of California
Santa Cruz, CA 95064
United States
831-459-5077 (Fax)

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