Variance, Return, and High-Low Price Spreads
19 Pages Posted: 23 May 2006
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: Suggested Citation