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VARIANCE, RETURN, AND HIGH‐LOW PRICE SPREADS
Author(s) -
Lin JiChai,
Rozeff Michael S.
Publication year - 1994
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1994.tb00194.x
Subject(s) - econometrics , predictability , conditional variance , economics , explanatory power , volatility (finance) , variance risk premium , autoregressive conditional heteroskedasticity , variance (accounting) , price variance , stock (firearms) , realized variance , financial economics , stochastic volatility , statistics , mathematics , volatility risk premium , mechanical engineering , philosophy , accounting , epistemology , engineering
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.